In this episode, the Trade Guys welcome special guest Aaron Padilla, who is the senior advisor for international policy at the American Petroleum Institute (API). He leads API’s work to determine and represent the oil and natural gas industry’s public policy positions on key international issues, including cybersecurity, trade and global economic policy, and sustainability. API recently came out in support of the USMCA. The Trade Guys discuss how Aaron is seeing the administration’s trade policies play out on the ground.
What We’re Reading
“Another Victim of the Trade Spat: U.S. Oil to China”
“U.S. oil exports to China have slowed to a trickle amid the trade spat between Washington and Beijing, in an abrupt reversal that is upending global crude trade flows and forcing American producers to find new buyers.”
“China was the biggest buyer of U.S. crude oil in the first half of this year. But in August, U.S. crude exports to China, the world’s largest oil importer, fell to zero, according to tanker tracking data surveyed by The Wall Street Journal. In September, only 30,000 barrels a day of U.S. oil went to China, down from an average of over 350,000 barrels in the year up till July.”
“As China turns American oil down, U.S. producers have found new markets and overall oil exports haven’t fallen significantly.”
Why it matters: China is opting to not import U.S. crude oil amid escalating trade and national security tensions, although Beijing hasn’t put tariffs on crude oil from the U.S. China had been the biggest purchaser of U.S. crude in the first half of 2018, but U.S. companies are having no trouble finding alternate export markets.
Key questions: Why has Beijing stopped purchasing U.S. crude when it was such a major player and there are no tariffs on crude oil? For U.S. oil exporters, what’s the long-term impact to losing China as a customer?
“China Tariff Threatens U.S. Liquefied Natural Gas Boom”
“China’s move to impose tariffs on U.S. liquefied natural gas imperils the ability of a burgeoning industry to export the bounty of American shale.”
“Retaliating against new Trump administration tariffs on $200 billion in Chinese goods, China on Tuesday issued levies on $60 billion of U.S. products, including a 10% tariff on liquefied natural gas, known as LNG.”
“Shares of Cheniere Energy Inc., the first U.S. company to export LNG from the U.S. Gulf Coast, rose on the news, as the tariff was lower than a 25% levy China had earlier threatened. Still, the tariff is bound to have an impact on American LNG exporters, analysts said, making them a potential early victim in the escalating trade battle between the U.S. and China.”
Why it matters: China has imposed a ten percent tariff on LNG, putting exports to the largest source of global demand for the fuel in jeopardy. Tariffs may handicap U.S. companies seeking long-term contracts, which could put at risk plans for new export terminals in the U.S. Competition to export to China is increasing as Australia, Qatar, and Russia eye the massive market.
Key questions: Can U.S. LNG companies and exporters overcome the handicap of the ten percent tariff, or will other countries simply outcompete the U.S. for long-term contracts in China? What is the significance of export terminals potentially not being built? How important is the Chinese LNG market to U.S. LNG exporters?
“USMCA Trade Deal Is A Win For Texas Energy Producers”
“President Donald Trump’s new trade deal, the USMCA, appears be beneficial to big oil and gas companies. Canada recently signed onto the new deal, along with the U.S. And Mexico, in a deal that replaces NAFTA. The new deal also has broad implications for the Texas economy, particularly energy production.”
“Matt Smith, director of commodity research at ClipperData, says the new agreement includes provisions that help protect U.S. oil company investments abroad.”
“’It also prohibits tariffs on oil and gas products, which is pretty handy for the U.S. because it’s including gasoline sold to Mexico by U.S. refiners,’ Smith says.”
Why it matters: Despite much handwringing over President Trump’s plans for NAFTA, the new USMCA appears to be workable for the energy industry. It maintains tariff-free trade for energy products and maintains ISDS with Mexico for the energy industry.
Key questions: How was this result achieved, especially when the administration appeared set on eliminating ISDS? Why is ISDS so important to the energy industry? Why was it ok to let ISDS go with Canada but not Mexico?
“Steel tariff woes”
“Since being implemented earlier this year, US President Donald Trump’s tariff on imported steel has placed the oil and gas industry—and its continued growth—in a kind of limbo. One of the most affected participants along the energy industry’s value chain has been pipeline companies, largely because of its need for line pipe for continued expansion of the country’s oil and gas pipeline network.”
“In written testimony last month before a hearing of the US House Committee on Ways and Means’ Subcommittee on Trade, Plains All American GP LLC Executive Vice-Pres., Chief Operating Officer, and incoming Chief Executive Officer Willie C. Chiang expressed his concerns with the Section 232 tariff exclusion process on steel.”
“The US Department of Commerce recently denied PAA’s exclusion request for 26-in. OD, high-frequency welded line pipe that the company needs to build the Cactus II pipeline, a planned 550-mile crude oil system that would enable production growth from the Permian basin in West Texas and southeastern New Mexico. About 80% of the $1.1-billion project cost, Chiang noted, is comprised of US material and labor and will support more than 2,600 construction jobs.”
Why it matters: The Section 232 tariffs on steel are negatively affecting multiple parts of the U.S. energy industry. Pipeline companies face uncertainty and project delays due to tariffs on line pipe. That could slow the development of new oil and gas fields in the U.S. – impacting multiple parts of the supply chain.
Key questions: Why can’t line pipe for pipelines be sourced from within the United States or from a country that has received a 232 waiver? How does added pipeline costs impact the rest of the oil and gas industry? What type of job gains are being foregone throughout the supply chain?