The more details you learn from the commitment of China to buy an additional US$ 52.4 billion of energy in the next couple of years, the more obvious the goal is, even with the world’s best will.
China undertook to purchase energy over and above $9.1 billion baselines from U.S. imports in 2017, with an extra divide of $18.5 billion in 2020 and 33.9 trillion in 2021 as part of the “Phase 1” trade truce between Beijing and Washington.
It would take the best-per-month triple to reach 2021 if that seems impossible already.
There is one important factor that needs to be changed even before China even starts to ramp up purchases of US energy before thinking about logistics or disruptions to the global trade flows that would lead to such a large shift.
China imposed a 5% import tax on American crude oil, 25% on LNG and 25% on coal as part of the earlier tariffs for state-specific products.
Such tariffs alone render any imports of US energy uncompetitive and therefore impossible unless Beijing is able to use its leverage to obtain higher market rates for US cargoes for State-owned oil refineries, natural gas utilities, and steel producers.
There is no evidence to date that the tariffs or concessions are being withdrawn in Beijing and without them, the expected rise in U.S. energy imports is a non-starter.
Even though Peking will decrease its tariffs or issue exemptions, the logistics and refinery problems will arise, which must be resolved before imports of crude oil can be accelerated.
If China increased imports of US crude oil to a daily excess of 1 million barrels (bpd)—around $21.4 billion at current West Texas intermediate futures prices — the physical movement of that volume of oil from the United States would be a challenge. Côte du Golfe, China.
Given the fact that there are about 2 million barrels of a very large crude carrier (VLCC), it would take 15 of those ships per month to go.
While the U.S. exporting terminals may handle this volume, questions remain as to the availability and potential costs of sailing these vessels empty back into the United States for the collection of additional cargo.
The problem then is whether Chinese refineries can use the quantities of US crude material needed to satisfy the terms of the agreement.
Instead of the lighter, sweet oil that the United States typically exports, many Chinese refineries are optimized to process heavy, sour grades, for instance, those from the Middle East.
According to the Refinitiv information, China imports light crude, taking approximately 270,000 bpd last year from the UK, 235,000 bpd from Malaysia, 152,000 bpd in Libya and 44,000 bpd from Nigeria.
LNG, COAL COULD WORK
Logistics on LNG and coal are much more feasible, with plenty of LNG available for sale in the United States, although the coal capacity can be limited.
But the flow of the US doubles or visits. The issue of LNG and carbon to China is disruptive, and it is unlikely that countries like Australia for coal and LNG and Qatar will be competing in this area