Oil stocks up ahead of Trump visit
Major deals in the pipeline, says insider
Domestic oil stocks surged on Tuesday, one day before US President Donald Trump begins his first visit to China, which reportedly will see the announcement of large-scale cooperation between the two countries in the energy sector.
China’s oil stocks surged by 2.41 percent in total on Tuesday, with almost all companies seeing their share prices rise, according to statistics from finance.sina.com.cn.
An industry insider, who declined to be named, said during a seminar held on Tuesday in Beijing that messages are circulating around Chinese energy circles that deals to be signed during Trump’s visit to China will include a $7 billion pipeline project involving China Petrochemical Corporation (Sinopec), as well as a potential agreement with US-based Cheniere Energy Inc on upgrading the liquefied natural gas (LNG) trade model by moving from the current spot trade system toward a mechanism based on long-term contracts. Cheniere Energy didn’t respond to a request for comment as of press time.
A report by Bloomberg on October 27 also said that Trump’s visit to China will give rise to deals worth billions of dollars, and one of the biggest deals the US government is currently negotiating is a multibillion-dollar energy investment from China Petroleum & Chemical Corp, a subsidiary of Sinopec. The share price of Sinopec rose by 1.45 percent on Tuesday.
The report added that the investment from China Petroleum is expected to be in the form of nonbinding memorandums of understanding. China Petroleum didn’t comment as of press time.
Trump will visit China from Wednesday to Friday during his first tour of Asia.
Energy policy change
Lin Boqiang, director of the Center for Energy Economics Research at Xiamen University, told the Global Times that the US and China have talked a lot in the past about large-scale energy cooperation, but without much success.
“This situation is likely to change this time with Trump’s visit. For one thing, the US in the past has been quite cautious about energy exports, but the Trump administration has been more open about this and is trying to seek potential global trade partners to sell their energy products,” Lin said on Tuesday.
Li Wei, an associate professor with Renmin University of China, also said during the aforementioned seminar that the US is “seeing changes in its energy policy.”
“The Trump administration hopes to erect its energy advantage into a new pillar of US economic supremacy. Under this strategy, the US government has been pushing forward plans to construct pipelines and LNG platforms that facilitate its energy exports,” Li noted.
Cooperation on energy between China and the US has been speeding up in recent months. According to Li, China’s imports of US coal, crude and natural gas have been rising fast since the second quarter of 2016.
He also mentioned that China’s imports of US crude so far in 2017 are about 15 times the volume in the whole of 2016.
Lin told the Global Times that China is looking to multiply its sources for energy imports, and seeking cooperation with the US is a good option as US energy is relatively cheap.
“Energy cooperation has long been a driver in China-US economic cooperation, and trade volume in both crude oil and LNG between the two countries has surged since last year. This sector outshines the others against the backdrop of the two sides’ trade friction in steel, aluminum products and intellectual property rights,” Gong Ting, an assistant research fellow with the China Institute of International Studies, told the Global Times on Tuesday.
Trade gap issue
Lin said that the potential US energy cooperation with China would also help smooth the two countries’ trade disputes, and alleviate US complaints about the trade gap.
China exported $309 billion worth of products to the US in the first nine months this year, while importing products worth $114 billion from the country in the same period, customs data showed on October 13.
But Li said it was unlikely that energy cooperation alone can address the trade imbalance between the two countries, as the scale of the energy deals is still limited compared with the entire economic cooperation of the two.
Experts said that China needs to see whether Trump’s energy policy is sustainable, as well as keeping a close eye on how US energy cooperation with other countries is going.
“Chinese State-owned firms should guard against risks when planning to purchase US energy assets, as reviews of foreign investment in the US are likely to be tightened,” Gong said.
“The US in the past has been quite cautious about energy exports, but the Trump administration has been more open about this.” Lin Boqiang Director of the Center for Energy Economics Research at Xiamen University