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Latest US tariff threat would hurt US oil, gas output: API

Highlights

US depends on China for key drilling fluid component

API says US energy security at stake in trade dispute

US Q1 crude flows to China shrink to 6,991 b/d

Washington — The latest US tariffs threatened against Chinese imports would hamper US energy exports, hurt domestic energy security, and push China to import more oil and gas from countries like Iran and Russia, the American Petroleum Institute argued Tuesday during US Trade Representative hearings.

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US President Donald Trump has threatened to impose 25% tariffs on $300 billion worth of Chinese goods that have not been targeted so far, leaving room for an escalation of the trade dispute on both sides.

The USTR has held seven days of testimony in Washington from more than 300 US companies and trade groups on the Section 301 tariffs.

"China's expected retaliation against US crude oil, refined products, and LNG would disadvantage US exports and could cascade into US domestic production," Aaron Padilla, API's senior adviser for international policy, told the USTR in written comments.

"US market share in China for LNG and other petroleum products may be difficult to restore with China turning to alternative suppliers," he added.

China -- Asia's top importer of US crude oil in 2018 -- has put sharp brakes on light sweet and medium sour US crude purchases since October amid the US-China trade dispute.

China imported 6,991 b/d of crude from the US in the first quarter, down sharply from 316,771 b/d in Q1 2018, according to data from China's General Administration of Customs.

US crude flows to China recovered to 116,750 b/d in April, the latest GAC data showed, but only a few Chinese refineries have booked US crude cargoes for May-July delivery, according to traders and analysts with knowledge of the matter.

China has backed off from buying US crude despite no actual tariffs being implemented to date, and a tense standoff in trade relations between Beijing and Washington makes it unlikely that crude flows will rebound sharply anytime soon.

For LNG flows, the US/China dispute initially affected spot US LNG cargoes, but has recently started to have a more severe impact on long-term investments in US liquefaction and export projects.

A planned meeting between Trump and Chinese President Xi Jinping at the G-20 leaders' summit in Osaka will likely determine the next phase of the trade dispute.

KEY DRILLING FLUID COMPONENT

API argued at Tuesday's hearing that the US oil and gas industry cannot quickly find new sources of key drilling supplies targeted on the latest tariff list, such as barium sulfate, or barite, which is used in drilling fluid.

The US imports 75-80% of the barite needed by the drilling fluid industry, API said. China accounted for 40% of global barite production in 2017, followed by India at 15% and Morocco at 10%, it said.

"But the quality of that ore is not always consistent with the specifications needed to meet API drilling standards and would still likely need to be mixed with Chinese barite to be usable," API said.

Halliburton, Industrial Oil Products, Newpark Drilling Fluids and AES Drilling Fluids also testified Tuesday against the tariff on Chinese barite imports. They said barite is an "irreplaceable product" for oil and gas exploration, and any alternatives would be cost prohibitive and metallic in nature, which would decrease drilling productivity.

"Based on this potential reduction, the market share for excess capacity of oil and gas production would likely shift to OPEC members and Russia," the drilling services companies said.

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

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