U.S. oil and gas exports should leap over the next two years if China fulfills its promises to increase energy acquisitions under the trade agreement signed on Wednesday between the world’s two largest economies, executives and traders said.
The agreement did not specify product quantities, but it commits China, the world’s largest importer of oil and the second-largest importer of liquefied natural gas (LNG), to purchase $52.4 billion more of U.S. energy supplies over the next two years.
U.S. oil executives and analysts welcomed the agreement after LNG was mostly dried up last year, and crude exports to China.
Nevertheless, several questions remain about the execution of the purchases and the market reaction has been mixed with lower oil trading after the signing of the agreement but increasing during the Asian morning.
China’s obligations under the deal increased to an $18.5 billion rise in 2020 and a $33.9 billion increase in 2021 from a baseline of $9.1 billion in 2017.
The deal “is a step in the right direction that will hopefully restore the burgeoning United States. LNG trade with China, “said Jack Fusco, chief executive of U.S. exporter Cheniere Energy Inc (LNG.A). LNG. Fusco was at the White House for the ceremonial signing.
Despite China’s most-U.S. withdrawal. LNG imports last year, U.S. shipments to other Asian countries, Europe and Latin America also moved the U.S. back to Qatar and Australia in 2019 to be the world’s third-biggest LNG supplier.
In a January 10 note, Goldman Sachs analyst predicts that the agreement will mean China will raise its crude imports to 500,000 barrels per day (bpd) in 2020 and 800,000 bpd in 2021. It also said LNG imports could reach 10 million tons this year, and 15 million tons in 2021, a total value of $38.2 billion.
One Singapore oil trader said economics favors U.S. crude as freight rates decline and rising shale production has U.S. crudes selling to international Brent at a discount.
Analysts, U.S. energy trade executives, and Asian buyers said demand, pricing and transportation costs would determine whether exports over two years hit the $52.4 billion mark.
Tariffs on many items that the two countries sell to each other, including LNG, will remain. China imposed a tariff of 25 percent on LNG, which crimped most activity with the US.
On Wednesday, a senior Trump administration source confirmed that China will need to issue tariff waivers or adjustments to meet its purchase commitments. Other concerns focus on Chinese refineries ‘ technical requirements.