China commits to increase US energy imports: Update

Updates with details throughout.

An interim US-China trade agreement signed today is offering US oil and LNG producers a chance to substantially increase their exports to China, President Donald Trump said.

The agreement commits China to increasing its energy purchases from the US by $52.4bn in 2020-21. "$50bn worth of energy is great for our energy people — we are now No. 1 energy (producer) in the world, bigger than Saudi Arabia and Russia," Trump said during the signing ceremony at the White House.

The agreement does not break down possible purchases by category, but lists LNG, crude, "refined products" and coal among possible commodities. China will buy $18.5bn in 2020 and another $33.9bn in 2021, on top of 2017 baseline purchases.

The trade deal also commits China to buying $32bn worth of agricultural products and an additional $78bn in manufactured goods over the two year period. Trump said the agricultural related purchases would range from $40bn to $50bn.

Total US exports of goods to China were $127bn in 2017.

US exported 223,000 b/d of crude to China in 2017 — the last full year before the beginning of a trade war that has curbed US energy exports to China. The value of crude exports to China was $4.3bn in 2017, out of a total of $8.4bn in energy exports to that country that year. The interim agreement thus commits China to more than doubling its energy imports from the US from a 2017 baseline.

The total value of US oil, LNG and other energy commodities exported to China in January-November 2019 was only $3.5bn, based on US Department of Commerce data.

US crude exports to China peaked in the first half of 2018, averaging 377,000 b/d in that period. The highest monthly volume of exports was recorded at 510,000 b/d in June 2018, right before the first round of tariffs Trump imposed on imports from China.

The US exported 144,000 b/d to China in January-November 2019, down by 40pc from the same period in 2018. Crude exports were only 62,000 b/d in November 2019.

Exports of LNG, butane and other energy commodities have followed a similar pattern. The US has not exported an LNG cargo to China since April 2019. Beijing raised the tariff on US-sourced LNG to 25pc in May 2019. It has been taxing US crude exports at 5pc since September 2019.

Chinese vice premiere Liu He, who signed the agreement on Beijing's behalf, did not mention a commitment to purchase energy products. "Based on market demand, in line with market terms, Chinese businesses will purchase $40bn of US agricultural products," Liu said. "If demand is more, they will buy more."

The agreement notes 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."

China's purchasing commitments are WTO compatible and will not come at the expense of third countries, Liu said.

The deal will keep in place existing tariffs that affect two-thirds of US imports of goods from China, Trump said.

"I am leaving them on otherwise we have no cards to negotiate," he said. "They will all come off when we are finished negotiating phase two."

Trump previously said he would like to finalize a follow up agreement after the presidential election in November.

By Haik Gugarats