Thu. Sep 29th, 2022

US-China Energy Trade and Challenges

US-China energy trade is one component of the overall US-China Trade. Many challenges are also linked to the overall US-China relation.

US energy companies have been doing businesses in China for a long time, for example:

ExxonMobil’s history in China dates back to 1892, GE started doing business in China as early as 1906.

Most of the time, these conglomerates have strategic visions and doing very well. Recently, they also have set up Regional Headquarters in China with an integrated business model while China is key part of their global operation. For example: Today, ExxonMobil’s business portfolio spans the full spectrum of the industry, from gas marketing in upstream to downstream and chemicals. ExxonMobil operates in China primarily through ExxonMobil (China) Investment Co. Ltd., headquartered in Shanghai. It signed long-term LNG sales and purchase agreements with PetroChina and Sinopec in 2009 to supply LNG from ExxonMobil’s equity share of the Gorgon Jansz LNG project in Australia and the PNG LNG project in Papua New Guinea, respectively.

China companies also invest in the USA from upstream to downstream projects. The BIG three energy companies in China: Petro-China, CNNOC, and Sinopec all have significant operations in the USA. US-China energy trade was expanded about five years ago when the US Shale Industry matured, and US became a net energy exporter while US exported crude oil and LNG to China. For China, the largest energy importer in the world, US exports are welcome additional choices. Natural gas being the designated transitional fuel for combating global climate changes, more US natural gas to China will also benefit the global environment.

But the win-win energy trades between the US and China suddenly faced significant headwinds due to the trade wars started in 2018. More specifically, the full-scale strong competitions between the US and China have soured the overall US-China relation, not just hampered the bilateral trade relation. The Phase-One Trade Agreement, which expired on December 31, 2021, is a very bad practice. It went through a government-government political process setting up unrealistic targets. China had committed to purchase US$20B of energy products from the US in two years. Because the global COVID-19 pandemic, these targets could not be achieved by any means.

To summarize, the major challenges facing US-China energy trades is that governments should leave the business alone. Trade war and trade agreement are merely government overreach. Let the free-market system work, better trade relation will foster a happier public relation. In fact, US and China have the opportunities for working together to calm the global energy market. A good example is the recent call by President Biden to China, Japan, South Korea, and India (world major crude oil consumers) for coordinated release of each nation’s SPR with the hope to stabilize the crude oil prices thus lowering the consumer gasoline prices.

But there are more opportunities than challenges, we are focused on promoting US-China energy trades in partnership with private sectors in both nations.