U.S. Energy To See Huge Investments From China

During President Trump’s visit to China, the U.S. signed US$250 billion worth of potential trade and investment deals that would boost American exports to China and Chinese investment in the United States.

The two single largest potential deals were signed in the energy sector at the official U.S.-China Business Exchange, which took place on November 8th and 9th during President Trump’s visit.

The agreements are just memorandums of understanding (MoU), not final contracts, but they set the stage for a stronger energy relationship between the two powerhouses of the global energy production and consumption.

There is some concern that Chinese investment in U.S. energy could undermine free market principles. On the Chinese side, it’s unclear if Beijing is convinced that the U.S. will not use energy to retaliate against China by cutting supplies if disputes or disagreements escalate, Forbes contributor Sara Hsu writes.

The White House described the potential deals as such “that will create jobs for American workers, increase United States exports to China, and stimulate investment in American communities.”

West Virginia and Alaska were the two biggest beneficiaries of potential deals for Chinese investment, both which are in the energy sector.

West Virginia announced the plan of the world’s biggest energy corporation—China Energy Investment Corporation—to invest US$83.7 billion in shale gas development and chemical manufacturing projects in West Virginia. This was the largest pledged investment out of the US$250 billion potential deals that the U.S. signed in Beijing.

China Energy—created by the recent merger between state-owned coal miner Shenhua Group and energy producer Guodian Group—plans the investment to span over the course of 20 years. The amount is higher than West Virginia’s US$72.9 billion gross domestic product (GDP) in 2016.

“Expanding Appalachia’s energy infrastructure, including developing a regional storage hub and market for natural gas liquids, will have a transformative effect on our economy, our security, and our future. From driving growth and creating jobs to maximizing America’s energy potential, the benefits for West Virginia and the country from this new investment will be significant and long-lasting,” Senator Shelley Moore Capito said in West Virginia Department of Commerce’s statement.

The second-biggest Chinese investment is planned for the state of Alaska, for advancing Alaska’s strategic gas infrastructure project—Alaska LNG.

The State of Alaska, Alaska Gasline Development Corporation (AGDC), China Petrochemical Corp (Sinopec), China Investment Corporation (CIC), and Bank of China (BOC) signed a joint development agreement to advance Alaska LNG. The deal, expected to involve a total investment of up to US$43 billion, will create up to 12,000 American jobs during construction, reduce the trade deficit between the United States and Asia by US$10 billion annually, and provide China with clean, reliable, and affordable energy, the U.S. Commerce Department said.

“Sinopec is interested in the possibility of LNG purchase on a stable basis from Alaska LNG,” Sinopec said in AGDC’s statement.

“This is an agreement that will provide Alaska with an economic boom comparable to the development of the Trans-Alaska Pipeline System in the 1970s,” Alaska Governor Bill Walker said.

In two other potential energy deals signed during President Trump’s visit, Cheniere Energy and China National Petroleum Corporation signed a MoU on long-term LNG sale and purchase cooperation, while Delfin Midstream, developing the first floating facility to export U.S. natural gas, signed a MoU for a 15-year sales deal with city gas distributor China Gas Holdings to supply 3 million tons of LNG annually from 2021. The US$8-billion LNG project will be located 50 miles off the coast of Louisiana.

The planned LNG deals fit in both the U.S. and Chinese natural gas production and consumption patterns and priorities.

The U.S. is expected to become a net exporter of natural gas this year and to continue to be a net exporter past 2018 due to rising exports to Mexico, declining pipeline imports from Canada, and growing LNG exports, the EIA says.

By 2022, the U.S. is expected to account for 40 percent of the world’s extra gas production, and will be on course to challenge Australia and Qatar for global leadership among LNG exporters, the International Energy Agency (IEA) has estimated.

China, on the other hand, is expected to become the leading determinant in global natural gas demand in the coming decades. Economic and industrial production growth, coupled with efforts to reduce stifling pollution levels, will lead to surging natural gas demand and an increase of natural gas as part of China’s energy mix at the expense of coal.

Although the U.S.-China agreements have yet to translate into definitive contracts, energy ties have been strengthened despite political differences.

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