By Georgi Kantchev and Rebecca Elliott
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.
But the changes have scrambled the global oil trade, with Russia
and Saudi Arabia moving in to replace U.S. oil in China. American
producers, in turn, are displacing other producers from its new
markets. The situation is also hitting the profits of some
shipowners, as the long and lucrative route from the U.S. to China
dries up.
So far, Beijing hasn't placed tariffs on U.S. crude oil, even as
it has imposed them on American liquefied natural gas. But analysts
say that the escalating clash over trade between the two nations is
the main reason behind the fall in imports.
For China, "putting a dent in U.S. oil exports takes aim at one
of the indicators most trumpeted by the Trump administration: U.S.
energy dominance," said Jason Bordoff, director of the Center on
Global Energy Policy at Columbia University and a former energy
official in the Obama administration.
President Trump has pushed for increased energy exports,
including when meeting foreign leaders, not least as one way to
shrink America's trade deficit.
Chinese companies may also be taking a pragmatic approach,
limiting their purchases of U.S. oil in case the trade battle
escalates further and tariffs are applied.
"If I buy a tanker of U.S. crude it takes 45 days to get it to
China, I don't want to find out midway that U.S. oil is now
sanctioned," said Amy Myers Jaffe, an energy expert at the Council
on Foreign Relations in Washington.
Chinese customs have stopped breaking down oil imports data in
March. Major Chinese oil companies, including CNPC, Sinopec and
Cnooc, didn't reply to requests for comment. CNPC's listed
subsidiary PetroChina declined to comment.
Since September, only one tanker carrying U.S. oil has headed to
China. The "New Courage" is expected to arrive in the eastern
Chinese port of Ningbo in late November, according to
tanker-tracker Vortexa. Chinese imports of other U.S. products like
fuel oil or liquefied petroleum gas have also ground to a halt,
data shows.
Tanker-tracking companies rely on satellites and sophisticated
computer models to monitor the ships and their conclusions are
widely used in the oil industry.
Trade frictions between Washington and its major partners have
already reshaped the flow of other U.S. exports, including soybeans
and pork.
U.S. exports of soybeans to China have fallen by $1 billion in
August after Beijing slapped a 25% tariff on the product. But much
of that lost trade has now gone to countries like Argentina and
Brazil. Even Iran has been buying up U.S. soybeans, emerging as the
biggest buyer of the crop in August, according to Bimco, the
world's largest shipowners association.
As less U.S. crude flows to China, other oil heavyweights are
already taking America's place, cementing longer-term
relationships.
Saudi Arabian oil exports to China jumped by 258,000 barrels a
day in August, while Russian exports jumped by nearly 200,000
barrels a day, according to tanker-tracker Kpler.
U.S. exporters don't expect trade tensions to reduce global
appetite for their product. They are instead finding new
customers.
The shale revolution unleashed vast reserves of new U.S. energy,
driving crude production to 11.2 million barrels daily this month,
an all-time high, according to the U.S. Energy Information
Administration. Export growth has helped spur that increase since
2015 when Congress abolished a 40-year-old ban on shipping American
oil to most international buyers.
The U.S. now exports nearly 2.6 million barrels a day of crude,
according to the EIA, up from 500,000 barrels daily in December
2015. Oil flows to India, Hong Kong, Australia and Denmark. Even
Georgia, sandwiched between big oil producers Russia and Azerbaijan
on the Black Sea, took a shipment of U.S. crude last year.
"Even though China decides that they're not going to buy from
us, it doesn't mean that export demand -- just because of that one
decision -- drops," said Mike Mears, chief executive of
Oklahoma-based Magellan Midstream Partners L.P., which owns
pipelines, storage facilities and marine terminals. "More barrels
will go to Europe, and more barrels will go to Latin America."
Shipments toward Europe have helped pick up the slack, rising by
41,000 barrels a day over the month in September, marking the
fourth straight month of gains, according to Kpler. Other Asian
buyers like Taiwan and India have also ramped up purchases.
Tallgrass Energy L.P. is one of a growing number of firms
jostling to build terminals along the Gulf Coast that would be
capable of loading the giant tankers typically used to export oil
to Asia.
Jason Reeves, who manages the company's terminals business, said
he was unconcerned about the possibility of reduced Chinese demand
for U.S. crude. "If they don't buy it," Mr. Reeves said, "it will
go somewhere else."
U.S. exporters also stand to benefit from an international
air-pollution rule set to go into effect in 2020 that would limit
the amount of sulfur in marine fuel, said Kevin Jebbitt, head of
crude oil trading for commodities trader Trafigura Group Pte. Ltd.
U.S. oil typically has a lower sulfur content than crude produced
in places like Saudi Arabia.
"We're convinced that the world needs U.S. oil," Mr. Jebbitt
said. Changes in China's buying habits don't affect Trafigura's
plans to build a new deep water export facility off the U.S. Gulf
Coast, he said.
Still, the fall in Chinese purchases of U.S. oil could leave
collateral damage to the shipping industry.
"The tanker shipping industry is hurt when distant U.S. crude
oil export destinations like China, are swapped for much shorter
hauls into the Caribbean and South, North and Central America,"
said Peter Sand, chief shipping analyst at shipowners association
Bimco. "The trade war is all around us now."
--
Lin Zhu
contributed to this article.
Write to Georgi Kantchev at georgi.kantchev@wsj.com and Rebecca
Elliott at rebecca.elliott@wsj.com
(END) Dow Jones Newswires
October 15, 2018 08:14 ET (12:14 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.