Chinese NOCs uncertain how to fulfill US trade deal



State firms await tariff waivers to implement trade deal

Market constraints make US crude purchases easier than LNG

Traders concerned about higher prices for US energy products

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Singapore —
China’s state-run companies are expected to do most of the heavy lifting to implement the energy portion of Beijing’s latest trade deal with Washington, and also tackle the market challenges involved in buying an additional $52.4 billion of US energy products over 2017 levels.

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The exact amount of LNG, crude oil, refined products and coal Beijing has to purchase under its trade deal with the US has not been specified, which works in China’s favor, traders said, by giving buyers flexibility to adjust purchases as part of the additional $52.4 billion in spending committed toward US energy products.

But existing tariffs on US energy (5% on crude and 25% on LNG), the large volume of purchases needed and potential rapid changes in pricing and arbitrage could mean the ramp up in buys will not be easy for the likes of state refiners, including Unipec trading arm Sinopec, China National Petroleum Corp (CNPC) and China National Offshore Oil Corp (CNOOC), that import the bulk of the country’s petroleum products.

The national oil companies are still waiting for Beijing’s directions.

“Chinese companies need further instructions to deal with the current tariffs on US goods before going shopping, such as any tariff cuts, rebates or exemptions,” a senior Sinopec official told S&P Global Platts after the deal was signed. He expects Beijing to announce arrangements soon.


Under Phase 1 of the deal, China has committed to buy $18.5 billion more of US energy products in 2020, over what it bought in 2017, and $33.9 billion more in 2021, over 2017 levels, with expectations of similar levels through 2025.

The deal covers crude oil, LNG, refined products and coal. Crude and LNG are expected to comprise the bulk of purchases as they are the most traded and have the largest market in China.

The commitments are relatively large and will take time to implement.

In 2017, China bought 153,715 b/d of US crude oil worth $3 billion at an average of $53.7/b. In 2020, assuming an average of $60/b, China will have to buy 1 million b/d of crude oil to run up a bill of $22 billion.

But crude oil is a high-value, high-volume , compared with other petroleum products like LNG.

China imported around 1.53 million mt of LNG in 2017 worth around $536 million at an average price of $7.2/MMBtu. In 2020, assuming an LNG price of $5.5/MMBtu, China will have to buy 3.5 million mt of US LNG just to rack up a bill of $1 billion.

Over January-November 2019, China’s total LNG imports were around 54 million mt.


Under current market conditions, it is easier to buy more US crude than LNG.

Asian refiners are increasingly diversifying from crude supply after the Abqaiq attack in 2019 and the US- standoff in early January, and after US sanctions on and removed favored grades of heavy and medium crudes from the market.

On the other hand, LNG markets are flush with supply, and US LNG is less attractive in Asia.

“The main thing is that [the trade deal] will help with market efficiency, however, we haven’t seen much non-contracted US LNG make its way into Asia recently as netbacks are currently favoring volumes to stay in the Atlantic Basin,” said Jeff Moore, Asian LNG Analytics Manager at S&P Global Platts.

Moore said the Phase 1 deal could ease some tensions for Chinese buyers to sign up for US volumes.

A source with CNOOC said the company won’t need to swap its US long-term contract cargoes with non-US cargoes if tariffs are suspended, but it doesn’t find new US LNG purchases feasible as “there’s no price differential between US cargoes and non-US cargoes in the spot market.”


Chinese traders have raised concerns that a surge in demand for US products will drive up their prices very quickly. A Shanghai-based crude trader said US goods will not remain cheap when the market knows China has to buy such large amounts.

But this is partly mitigated by a feasibility clause in the deal.

It states that “purchases will be made at market prices based on commercial considerations and that market conditions, particularly in the case of agricultural goods, may dictate the timing of purchases within any given year.”

Still, if China has to buy more US LNG no matter how it is priced, it will be a political assignment, which will have to be carried out by the state firms, the CNOOC official said.

China tariffs on key US petroleum products


Standard tariffs

Tariffs on US

1st round

2nd round





Jet fuel




Fuel oil


















Source: Ministry of Commerce, People’s Republic of China

Source: Platts


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