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Oil, LNG trade at stake in US-China talks resuming Monday

Washington — Trade talks resuming Monday between the US and China could signal whether crude and LNG flows will pick up between the two countries this year or stay mired in the trade dispute.

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The US Trade Representative announced Friday that top energy and agriculture officials would be part of the US delegation attending meetings in Beijing Monday and Tuesday.

US crude exports to China disappeared in August, with none reported through October, according to the latest US Energy Information Administration data.

Before exports dried up, the US sent an average of 377,600 b/d to China in the first seven months of 2018, according to EIA data.

The all-time highest monthly average was June's 510,000 b/d.

US LNG shipments to China stopped in September, according to EIA data, but returned in October at lower levels than earlier in the year.

The US sent 7.3 Bcf to China in October, compared with a 2018 monthly peak of 17.5 Bcf in April and 2017 monthly peak of 24.6 Bcf in October 2017.

China hit US LNG with a 10% tariff in September and threatened to increase it to 25% in retaliation to Trump administration tariffs on $200 billion in Chinese goods.

Charlie Riedl, executive director of the Center for LNG trade group, said some US LNG exports can continue to China despite the current tariff, but a 25% tariff would all but halt the flows.

"I'm hard-pressed to see how that works," he said. "If they're going to put a 25% tariff on US LNG, then the rest of the world's LNG becomes competitive enough to make it attractive for Chinese buyers."

Kevin Book, managing director of ClearView Energy Partners, does not expect any major breakthroughs in next week's talks. But, he said, a resumption of oil and LNG flows will be one way to gauge whether the negotiations are making progress or breaking down.

"If there's to be trade progress with China, the hydrocarbons should be the easy part," Book said. "The reality is that if things go well, China's willing to buy crude oil and LNG from the US because China needs crude oil and LNG. But China's also shown its willingness and ability to diversify itself away from the US in an instant."

The US delegation includes Steven Winberg, the Department of Energy's assistant secretary for fossil energy, and Ted McKinney, the US Department of Agriculture's under-secretary for trade and foreign agricultural affairs. Other senior officials from the White House, and Agriculture, Commerce, Energy, State and Treasury departments will also attend.

Next week's talks are the latest between the US and China since US President Donald Trump met with Chinese President Xi Jinping at the G-20 summit in Argentina in December. Trump said at the time that he would delay the next US tariff escalation until March 2, set previously for January 1.

Riedl said the meeting is a good sign for the US LNG industry, even though he does not expect any major resolutions to be announced next week. He said it was telling that it took so long for US LNG to be brought into the trade war.

"They held LNG out as long as they possibly could on the Chinese side," he said. "I would expect that it would be one of the first things that would be resolved just given the priorities that the Chinese have placed on this and the push we have made here with the administration."

-- Meghan Gordon, meghan.gordon@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com