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US-China tensions don't blunt US natural gas production, but imperil long-term trust: experts

Highlights

Market forces, investor competition seen pressing

'At least a generation' to restore trust

Washington — Continued US-China trade tensions have thus far failed to blunt phenomenal growth in US natural gas production or block the path to export markets despite some short-term dislocations of product moving to China, a key trade group economist said Friday.

Speaking before the National Capital Area Chapter of the US Association for Energy Economics Friday, Dean Foreman, chief economist of the American Petroleum Institute, said that market factors such as competition for investors from a broad slate of proposed energy facilities may have more impact on the US LNG sector. Some 15 US LNG projects are competing against refinery expansions, pipelines, petrochemicals, gas processors, etc., especially across the Gulf Coast and the production areas in Pennsylvania, he said.

"If we grow in 2020, as the [Energy Information Administration] expects, we're going to be butting against real market constraints, real infrastructure constraints, that, frankly, regardless of what happens on the trade front, this is just one many issues."

CLIMATE POLICY

In his view, climate and environmental policies are emerging as key questions impacting how the oil and gas industry will compete, along with the question of trusted long-term international trade relations, he said.

Foreman spoke on a panel examining the effect of China tariffs on US energy exports, with none of the experts foreseeing a near-term exit from the trade tensions that have currently choked off flows of US-produced oil and LNG to China.

Jane Nakano, senior fellow at the Center for Strategic and International Studies, said that trust in China of the US as a trading partner had decreased to the extent that "it will take a while, at least a generation" to return that to the level that may be needed for "much more robust" economic and financial cooperation.

COMMODITIES 'POLITICIZED'

Whether the US has intended it or not, she said "energy commodities have become politicized in enough domains, such as trade, and that may be a pretty tough one to undo." She pointed to a Chinese government initiative to become more self-sufficient in energy and natural resources, including increasing spending on upstream activities for oil and gas production.

Foreman agreed that a trusted trade relationship with China was needed for the long-term vision to be realized in which the US grows to capture a large share of the global LNG market.

Gregory Dolan, CEO of The Methanol Institute, lamented the impact of retaliatory tariffs from China on US methanol exports, amid a resurgence of US methanol production driven by low-cost US gas.

"When you add a 25% tariff on top of that cost curve, now we're not affordable when selling into a Chinese market," he said.

Noting that proposed methanol plants, intended for export, represent an investment of about $1.1 billion or $1.2 billion, he said, "This investment is what is at risk right now."

The Chinese tariff on methanol came after the US imposed a tariff on methanol from China, which was not exporting methanol to the US. "So the policy doesn't seem to make much sense for an industry like ours," he said.

STEEL TARIFFS

Foreman also highlighted some impacts associated with steel tariffs and quotas for oil and gas production.

The ability to import a product needed for drilling from countries that have opted for quotas, can be undercut, he said, if a country had not produced that for several years.

"So you can't competitively source things, and the supply chains have shifted as a result," he said.

-- Maya Weber, maya.weber@spglobal.com

-- Edited by Rocco Canonica, newsdesk@spglobal.com