While jousting over trade with US President Donald Trump, Chinese leaders must have come easily to their agreement to raise imports of US energy over 3-5 years.
“It was going to happen anyway,” asserts a May 2 energy brief from Facts Global Energy (FGE), London.
Chinese national oil companies, FGE notes, have increased purchases of US crude during the past year, at least partly to show Middle Eastern exporters limiting output that they have alternative supplies.
Diversion of US crude toward China and away from Europe supports the Brent-Dubai price spread otherwise under pressure.
But a test comes when refiners begin cutting sulfur in marine fuel to meet International Maritime Organization rules effective in 2020.
Then the Brent-Dubai spread will widen along with sweet-sour differentials, and relatively expensive light, sweet crude might lose allure in China.
LNG buyers from China, meanwhile, recently signed purchase agreements with US suppliers.
They were “largely absent” from the first phase of LNG projects now coming on stream in the US, FGE says. The agreement to boost energy imports from the US will encourage their deal-making.
Meanwhile, the country’s established position as an importer of US LPG will strengthen further as propane dehydration expands. Some of the importers are independent and therefore less directly swayed by the government. Still, FGE says, “it is typically easier for companies to align with state goals, so US LPG may be favored.”
Already a major importer of US ethanol, China will need more as it tries to distribute gasoline containing 10% of the oxygenate nationwide by 2020.
China produces a surplus of corn but can’t build enough distillation capacity in time to meet its target. The US is the only ethanol exporter able to fill the need.
Whatever their motivation, changes in US-China energy trade won’t disturb global markets. But they do serve political and economic interests and are better than a trade war.
“Everyone is happy,” FGE says. “Get ready for rising US-China crude, LNG, and LPG trade.”
(From the subscription area of www.ogj.com, posted May 25, 2018; author’s email: [email protected])