Energy Export Growth Hinges on Further Progress in U.S.-China Trade Talks

Jessica Lutz
Posted January 23, 2020

The phase one trade deal between the U.S. and China is a step in the right direction for U.S. energy, increasing market stability and setting the stage for future negotiations. However, much more still needs to be done to restore U.S. energy export growth to China and repair damage brought on by the lengthy dispute – points made by API’s Aaron Padilla, senior advisor for international policy, in a Wall Street Journal interview earlier this week.

The U.S.-China trade dispute has harmed the U.S. natural gas and oil industry on two fronts: First, U.S. tariffs have increased the cost of many industrial components that are inputs to industry supply chains, which are used to manufacture other products and/or installed in U.S. and global energy infrastructure. Higher costs for these needed components could increase the cost of production and, potentially, energy costs to U.S. consumers.

Second, China’s 10% retaliatory tariffs on liquefied natural gas (LNG), and its retaliatory halt of all imports of U.S. crude oil from August through November 2018, significantly reduced U.S. exports of natural gas and oil to China.

The U.S. is the world’s largest producer of oil and natural gas. China, on the other hand, is the world’s second-largest consumer of petroleum products and has the second-largest refinery capacity – behind only the U.S., for both. Until the beginning of the trade dispute, in June 2018, there had been a trend of sustained rise in U.S. exports of natural gas and oil to the country. China’s share of total U.S exports of crude oil dropped from over 20% in the first half of 2018 to nearly 5% in the first half of 2019.

^{Source: U.S. Energy Information Agency (EIA). Petroleum & Other Liquids: Exports by Destination, U.S. Natural Gas Exports and Re-Exports by Country.}

^{Source: U.S. Energy Information Agency (EIA). Petroleum & Other Liquids: Exports by Destination, U.S. Natural Gas Exports and Re-Exports by Country.}

Now, even if all tariffs and other trade restrictions were removed, we’re already seeing evidence that things may not return to normal. Padilla:

“China is able to rely on other suppliers for its crude oil import needs. Just in 2018, China imported crude oil from 45 countries and they only received 3% of their crude oil imports and 4% of their LNG from the U.S.”

It is clear that trade wars disrupt global supply chains and create new barriers to U.S. exports. We’ve talked about the consumer impacts of the U.S.-China trade war (see here, here and here), and we know that Americans are paying for the cost of these misguided trade policies, not China. Tariffs are, ultimately, a tax on imported consumer goods used by millions of Americans, as well as a drag on U.S. jobs. While de-escalation of trade tensions is welcome news, there is certainly more work to be done.

It is critical for the U.S. energy industry, and many other American industries, that the administration stay at the negotiating table until the U.S.-China marketplace for trade is fully restored and all remaining tariffs are lifted. Padilla said that’s industry’s goal:

“We're looking to continue our advocacy for the full removal of the tariffs and quotas on steel imports that remain in place on most countries that export to the U.S. These products are important to our industry because production in the United States is continuing to grow and that requires infrastructure to be built and specialty steel products that often can only be procured in the specifications that our industry needs from outside suppliers.”