Opinion: Tough for China to Buy Enough U.S. crude, LNG
Perspective
(Reuters) - The big, unresolved question from the initial trade agreement between the United States and China is what happens if Beijing cannot meet the massive jump in required commodity purchases.
While the agreement is a welcome development in de-escalating tensions between the world's two biggest economies, it apparently makes commitments that China will find almost impossible to fulfill.
Beijing has agreed to increase purchases from the United States by $200 billion over the next two years over and above the level of imports in 2017, according to U.S. Trade Representative Robert Lighthizer.
China imported about $130 billion in U.S. goods and $56 billion in services in 2017, prior to the start of President Donald Trump's tariff dispute in 2018.
While there is scope to boost China's imports of U.S. manufactured goods and services, it's clear that the heavy lifting will have to be in commodities, such as crude oil and LNG.
One of the best hopes of boosting China's imports is crude oil, given the shale boom has made the United States the world's top producer and given a readily available stream of crude available to ship from the Gulf of Mexico.
In fact, China's imports of U.S. crude were steadily rising prior to the start of the trade dispute, only to plummet as the tit-for-tat tariff war escalated.
The best month for Chinese imports of U.S. crude was June 2018, the month before the tariff war started, when 466,000 barrels per day (bpd) arrived at Chinese ports.
The average for the first six months of 2018 was 344,000 bpd, according to Refinitiv vessel-tracking and port data.
Assume a near tripling in China's imports to around 1 million bpd, and this delivers an annual revenue of about $21.9 billion, assuming an oil price of $60 a barrel, which is in line with the current West Texas Intermediate (WIT) futures price of $59.85.
LNG was another promising growth area of U.S. exports to China prior to the trade dispute, with 25 cargoes carrying a total 1.73 million tonnes of the super-chilled fuel arriving in the first six months of 2018.
Assume a tripling of this rate, annual imports would be 10.4 million tonnes, which would represent about 20% of China's total current level of LNG imports.
At current Asian spot prices <LNG-AS> of around $5.65 per million British thermal units, this would equate to about $302 per tonne of LNG, meaning 10.4 million tonnes would be worth about $3.14 billion.
Overall, while any progress in the trade dispute is positive for the global economy, there appears a very real risk
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