Trump administration urged to pressure China on promise to buy US$52 billion worth of US energy products
- Producers warn administration that China is falling behind in its commitment while increasing purchases of Russian and Saudi crude
- Crude oil prices had an unprecedented fall into the negative territory because of depressed demand from the pandemic
China needs to follow through on its promise to purchase US$52.4 billion in US energy over the next two years, as it is falling behind in its pledge as part of the phase one trade agreement in January, according to a US trade association.
In the midst of a historic collapse in crude oil prices as demand evaporates due to the Covid-19 pandemic, the American Exploration and Production Council, in a letter on Tuesday, urged the Trump administration to pressure China to act on its promised energy purchases.
“China has only purchased a de minimis amount of US crude in the first months of 2020, while it has increased purchases of crude oil from Saudi Arabia and Russia,” the council’s chief executive Anne Bradbury said.
The council, which represents 25 of the largest independent oil and natural gas exploration and production companies in the US including Apache and Chesapeake Energy, addressed the letter to US Trade Representative Robert Lighthizer.
“Rather than increasing imports from countries like Russia and Saudi Arabia, the Chinese government must take the necessary steps to remain in good standing with the US as a trusted trade partner,” Bradbury said.
Crude oil prices had an unprecedented fall into the negative territory because of depressed demand from the pandemic that halted many businesses and kept billions of people in their homes around the world.
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Under the phase one trade agreement, China has agreed to buy US$18.5 billion more in US energy products in the first year and another US$33.9 billion in the second year.
Energy analysts have been sceptical that the promised amount of imports could be fulfilled. China’s crude imports from the US dropped 43 per cent to 138,790 barrels per day in the first 11 months of 2019 from a peak of 245,600 barrels a day in 2018 after Beijing imposed a 5 per cent import tariff on US oil.
Goldman Sachs analysts estimated in a January report that China may increase its crude imports to 500,000 barrels a day in 2020 and 800,000 in 2021 in a purchase ramp-up to fulfil the pledge.
An increasing global glut has been driving the oil prices down. For weeks, the US energy industry and the Trump administration have been focusing on Saudi Arabia and Russia to cut production.
Last week, OPEC and its oil-producing allies agreed to the largest production cut ever in emergency negotiations. In an unprecedented coordinated effort by Russia, Saudi Arabia and the US, the producers agreed to slash 9.7 million barrels a day in May and June, close to 10 per cent of the world’s output.
But analysts said the cut fell short of meeting the global demand that would be sufficient to stabilise the commodity prices.
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Tuesday’s letter signified a pivot among US industry advocates to shift away from Russia and Saudi Arabia to focus on how Chinese purchases can help US energy industry.
The letter emphasised that the energy independence and national security of the US are now at severe risk due to the negative demand impact, market oversupply and the lack of storage capacity.
Bradbury said: “China’s implementation of the trade agreement is also critical because China has the most storage flexibility with its national petroleum reserves. It has been reported that Chinese government agencies and state-owned energy companies have been looking at bolstering their strategic available stockpiles with ‘cheap oil’.”
