Chinese State Companies Stop Importing US Oil
HOUSTON, TEXAS – December 1, 2018
In October, China reduced its imports of oil and liquefied natural gas from the United States to zero, according to the general customs administration of China. At the same time, Russian oil supplies reached their maximum. How did it happen that the world's largest importer of hydrocarbons closed its market to the Americans?
Potential losses from the loss of the Chinese market for Americans are estimated at billions of dollars per year.
Last year, Beijing imported about 3.6 million tons of liquefied gas from overseas, resulting in the US becoming the second after Australia (4.8 million tons) supplier of this type of fuel to China, pushing Qatar to third place (2.7 million tons).
According to Thomson Reuters, last year's LNG supplies to China brought about a billion dollars a month to American exporters.
In 2018, the export of US LNG to China steadily declined, not reaching a million tons by August (against 2.1 million for the same period of 2017). At the same time, in general, China increased gas imports by 17%, and as for oil — in October, Beijing imported a record 9.7 million barrels per day. The main suppliers of oil to the country were Russia and Saudi Arabia, liquefied gas — Australia (2.27 million tons in October), Qatar (960 thousand tons) and Malaysia (496 thousand tons).
Everything goes as they wanted
The October cessation of LNG and oil imports from the US is a consequence of the trade war between Washington and Beijing. Despite the mutual increase in duties, American companies continued to increase fuel supplies to China.
Trump believed the experts who assured him that the trade war would not affect the energy market, and his administration increased pressure on Beijing. In September, Washington imposed 25% duties on more than 300 Chinese goods.
The Chinese also responded by increasing import tariffs. And, contrary to the expectations of Washington analysts, they did not ignore the supply of fuel. The largest oil refining company in Asia, China's Sinopec stopped buying black gold in the US, and LNG has imposed a 10% duty.
Chinese Deputy Minister Wang Shouwen has warned that Washington will face "difficulties" in the supply of liquefied gas. And he was not kidding: A month later, Beijing completely refused to purchase American LNG.
Ready to move on
American analysts and market players have recognized that multibillion-dollar projects are under threat.
"Beijing's actions will lead to the fact that US companies we'll be declaring bankruptcy," said the head of LNG Canada Andy Kalia. According to him, import duties significantly reduced the competitiveness of American LNG.
The loss of the Chinese market will be a heavy blow for American producers, as China is the most promising buyer of liquefied natural gas in the world. Last year alone, LNG consumption in China increased by 14.8% to 238.6 billion cubic meters. In 2020, this figure is expected to increase to 270 billion. In 2017, about 15% of US LNG exports accounted for China.
In addition, China is the second largest consumer of American oil (after Canada). Thus, in May, Beijing imported 427,000 barrels of black gold per day from the US.
It will be very difficult to find alternative markets for American fuel exporters. Especially if we are talking about LNG -- most likel, neither Japan nor South Korea will be able to significantly increase purchases.
Oil from Russia and Iran
American oil companies also have something to think about. Back in May, Beijing recommended that state-owned oil refineries buy more oil in the US in order to diversify supplies. But the trade war changed everything. Following Sinopec, which owns about 40 Chinese refineries and petrochemical enterprises, the purchase of American oil was suspended by PetroChina and Zhenhua Oil, as well as independent oil refiners.
Having abandoned American oil, Beijing intends to continue importing hydrocarbons from Iran. Iranian oil supplies to China last October fell by 64% to 1.04 million tons. However, China was included in the list of countries for which Washington made an exception, and in November imports increased.
Nevertheless, Russia remains the largest oil supplier to China. For the first 9 months of 2018, China's import of Russian oil increased by 16.6% compared to the same period in 2017 and amounted to 1.39 million barrels per day. And in October 2018 compared to October 2017, imports increased by 58% to 7,347 million tons (1.73 million barrels per day), which was a historical record.
It seems that US analysts’ worst fears are coming true. Russia is already a key player in the Chinese oil market, and after Beijing refused to import from the US, it will supply China with even more black gold, Bloomberg says.