Aug. 14–China has so far chosen not to impose tariffs on U.S. crude oil and liquefied natural gas, but crude exports from Texas have fallen sharply this summer due to fears over President Trump’s escalating trade conflict and shrinking discounts, according to a report by the investment research firm Morningstar.
China, which last year surpassed the United States as the world’s largest crude importer, is buying more oil from Russia and Saudi Arabia, said Sandy Fielden, director of oil and products research at Morningstar. As a result, U.S. energy companies are learning they need to build better long-term relationships with Asian nations, including China, to sell crude, LNG and other petroleum products, Fielden argued.
Crude exports only became legal again at the end of 2015, when Congress ended a 40-year ban that began in the 1970s after the Arab oil embargo. About 75 percent of U.S. crude exports come from the Texas Gulf Coast.
“The industry is figuring out there is more to export markets than delivering crude to Houston or Corpus Christi docks by pipeline and waiting for passing tankers,” Fielden said in his report, which came out Monday. “A necessary first step is better shipping, hence the flurry of midstream projects announced this year to build out Gulf Coast export terminals to handle giant tankers, or very large crude carriers, that keep long-haul freight costs to a minimum.”
Apart from port expansions, companies such as Houston’sEnterprise Products Partners and global commodities trader Trafigura are proposing building crude oil exporting terminals deeper off the Texas Gulf Coast in order to more easily accommodate the largest crude-carrying vessels.
U.S. crude oil exports to China surged from about 22,000 barrels a day in 2016 up to almost 400,000 barrels day last year and early in 2018, accounting for about 20 percent of all U.S. crude shipments. This summer, those volumes have plummeted to 200,000 barrels a day.
U.S. energy companies are compensating by diverting more of that crude to India and other Asian nations, such as South Korea, Taiwan, Singapore and Thailand.
While China is buying less U.S. crude, the decision to spare oil and LNG from punishing tariffs shows that the Chinese still need the energy, analysts said. China has slapped tariffs of U.S. agricultural products in retaliation for tariffs placed on it products, including steal, by the Trump administration.
Brian Youngberg, a senior energy analyst at Edward Jones in St. Louis, said the trade conflict with China shouldn’t upset energy markets too much, since Texas and U.S. oil producers are likely to find other buyers.
“At the end of the day, oil is a global commodity,” Youngberg said, “and oil will find a home somewhere in the world.”
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