Under the trade friction, energy and chemical industry is the breakthrough point

In the first quarter of 2020, China’s export volume to the United States was approximately US$4.21 billion, a year-on-year decrease of 25.1%; while my country’s imports from the US were approximately US$3.26 billion, a year-on-year decrease of 5.1%.

Under the trade friction, energy and chemical industry may become a breakthrough for China and the United States to create a new balance of economic and trade relations.

The United States is the largest country in China's petrochemical trade. Relevant data shows that from 2017 to 2019, the total trade volume of energy and chemicals between China and the United States was 47.6 billion U.S. dollars, 54.6 billion U.S. dollars, and 41 billion U.S. dollars (of which, imports from the U.S. 17.5 billion U.S. dollars and exports to the U.S. 8.1%, 7.35% and 5.8% of the total foreign trade of the energy and chemical industry. In the first quarter of 2020, China’s export volume to the United States was approximately US$4.21 billion, a year-on-year decrease of 25.1%; while my country’s imports from the US were approximately US$3.26 billion, a year-on-year decrease of 5.1%.

Energy and chemical industry is a breakthrough for China and the United States to create a new balance of economic and trade relations. The China Petroleum and Chemical Industry International Capacity Cooperation Alliance estimates that China is expected to increase from the United States in 2020 and 2022 through calculations on the domestic market, global supply, U.S. export supply capacity and competitiveness of U.S. products related to Sino-U.S. energy and petrochemical products. Imported petrochemical and energy products between 35 billion and 42 billion US dollars. At the same time, the two sides should actively form mutually penetrating bilateral investments in the upstream development of oil and gas, petrochemical products, fertilizers, tires, and oil and gas infrastructure to further consolidate the economic interests of China and the United States and form a new balance of Sino-US relations.


China and the United States are in different positions in the energy and chemical industry chain

Most of China's petrochemical products exported to the US are low-value-added primary processed products, while China's imported products from the US are mainly chemical raw materials and high-value-added, high-tech chemicals. The United States is highly dependent on Sinopec's downstream products, while China is the largest source of imports of American textiles, raw materials and rubber and plastic products. Taking 2017 as an example, the top 5 Chinese exports to the US are textile material shoe uppers, leather shoe uppers, tire products, aviation kerosene, and plastic/leather footwear; while China’s imports from the US rank the top 5 The products are petroleum, liquefied propane, various ethylene products, liquefied natural gas and other diagnostic or experimental reagents and configuration reagents/calibration reference materials. After the signing of the first phase of the Sino-US trade agreement, it is expected that in 2020, the top commodities imported and exported can refer to the product categories of 2017.

It can be seen from the analysis that the future petrochemical trade will play an important role in the Sino-US trade balance. According to the calculations of the International Capacity Cooperation Alliance of China’s Petroleum and Chemical Industry, the potential of China’s imports of energy products from the United States in 2020 is as follows: crude oil approximately 23 billion US dollars, LNG approximately 4 billion US dollars; propane approximately 1.5 billion US dollars; ethylene/polyethylene approximately US$2.5 billion; chemical fertilizers and raw materials (including methanol) are about US$1 billion. At the same time, imports of petroleum coke, petroleum pitch, sulfuric acid, caustic soda, soda ash, pure benzene, synthetic resin, and synthetic rubber can also be increased appropriately.

At present, China's imports of oil and gas from the United States have increased significantly

China has become the United States' second largest export market for crude oil and third largest LNG export market. In 2017, China imported 7.654 million tons of crude oil from the United States, a year-on-year increase of 14.8 times; imported liquefied natural gas was 1.53 million tons, a growth rate of 5 times that of the previous year. In the first quarter of 2018, 3.889 million tons of crude oil was imported from the United States, which accounted for a rapid increase from 1.8% in 2017 to 3.5%; during the same period, affected by the "gas shortage", demand for spot LNG in the United States rose sharply, from January to February 2018 Imported 778,000 tons of liquefied natural gas from the United States, which accounted for 8.5% from 4.0% in 2017. It can be predicted that with the rapid growth of China's oil and gas demand, there is a large room for growth in oil and gas imports from the United States.


Natural gas

It is estimated that stock trade contracts can provide an increase of US$7.6 billion to US$8.4 billion. The United States began exporting LNG in February 2016. In February 2018, China and the United States signed the first long-term LNG agreement, which was signed by Chenier Energy, the largest LNG operator in the United States, and PetroChina.

According to statistics from the General Administration of Customs, in 2017 and 2018, China imported 1.511 million tons of LNG from the United States and 2.148 million tons, valued at US$640 million and US$1.095 billion, respectively, accounting for China’s total LNG imports that year. About 4% of that. Judging from the amount of agreement reached, China has more room to increase imports of US crude oil and liquefied natural gas. On May 13, 2019, the Customs Tariff Commission of the State Council of China issued an announcement that the additional tariff rate on the list of products where liquefied natural gas is located was raised from the previous 10% to 25%. This is a countermeasure taken by China after imposing tariffs on the United States. According to statistics from the General Administration of Customs, from January to November 2019, China's LNG imports from the United States amounted to only US$113 million.

Under the trade friction, the first Sino-US long-term LNG contract has also been affected. The previous contract stipulates that PetroChina will purchase 1.2 million tons of U.S. LNG from Chenier Energy Company each year. The supply will start at the end of 2018 and will gradually reach a supply of 1.2 million tons, with a supply period of 20-25 years. In 2019, Chenier Energy exported 260,000 tons of LNG from China. At present, the trade contract between the two parties has been implemented, but most of the US LNG is shipped to regions outside China for sale through transfer/exchange models. When will Chinese companies resume shipping LNG to China in the future, it depends on when the Chinese government will cancel the punitive tariffs on LNG. It is reported that when Chenier Energy signed the long-term LNG long-term agreement with PetroChina in February 2018, the restriction on locking destinations for traditional LNG contracts has been lifted.

The current long-term stable price of Henry Hub, the US LNG trading center, is about US$2.2/million British thermal unit, plus the FOB price after processing fees is about US$5/million British thermal unit, plus After the freight, the CIF price is difficult to be less than 7 US dollars / million British thermal units. Based on this conversion, China's CIF gas price is about 1.7 yuan/cubic meter.

Other major imported gas sources, the entry price of pipeline gas from Central Asia and Russia is about 1.43 yuan/cubic meter. Based on oil price fluctuations and pipeline transportation fees to eastern China, the economics of imported LNG and pipeline gas in the United States are roughly equivalent.

The United States' natural gas terminal facilities were once the bottleneck for its exports. The United States has substantially strengthened the construction of terminal facilities in the past two years. A state-owned enterprise expert estimated that the current U.S. terminal facilities have been able to meet the annual export capacity of more than 40 million tons of LNG, which is expected to increase to 140 million tons in 2024. Another major bottleneck is the capacity of the Panama Canal. However, after the expansion of the canal in 2016, the problem of large LNG carriers unable to pass through the canal has been resolved, greatly shortening the route of U.S. LNG exports to China and reducing freight. The expert predicts that China's ability to import US LNG can reach 10 billion cubic meters per year, or about 14 million tons.

Calculated on the basis of the Sino-US LNG trade based on spot trade, the amount of LNG that can be imported from the United States in 2020/2021 will be 27.1 billion to 29.5 billion cubic meters, with an amount of 8.2 billion to 9 billion US dollars, an increase of 7.6 billion ~$8.4 billion.

However, this year, affected by the global epidemic, it is difficult for domestic industries to resume work and production, and the growth rate of domestic natural gas demand has slowed down. There are still big variables in China's natural gas consumption demand this year.


Liquefied Propane

China is the world's largest propane importer. China's dependence on liquefied propane is about 90%. In 2018, it imported 13.5 million tons and increased to 14.95 million tons in 2019. Propane is the second largest petroleum export product of the United States, and it has exported more than gasoline for several years. The United States is China's largest source of liquefied propane imports.

In 2017, China imported 3.374 million tons of propane from the United States. In 2018, affected by the Sino-US trade friction, the amount of propane imported fell to 1.507 million tons.


Crude oil

After the US crude oil export restrictions were lifted in 2015, China began to import crude oil products from the US. In 2018, China imported 12.28 million tons of US crude oil, and the proportion of imports increased to 2.6%. Affected by trade frictions, China's imports of U.S. crude oil decreased significantly in 2019, with only 6.35 million tons in the first 11 months, and the proportion of imports fell to 1.3%. It now appears that the balance of the US$18.5 billion to US$33.9 billion in energy products that China has promised to increase imports can only be filled by crude oil. It is estimated that in 2020/2021, China will import 30.49 million to 63.03 million tons of crude oil from the United States, and the amount of imported crude oil will reach 13 billion to 26.9 billion US dollars, an increase of 9.8 billion to 23.7 billion US dollars over 2017. It is worth noting that in 2021, the United States will become China's third largest crude oil importer. Only then can China complete the energy trade agreement part of the first phase of the Sino-US trade agreement.


Petroleum coke

China is the largest importer of petroleum coke in the United States. In 2017, China's petroleum coke imports reached a peak of 7.426 million tons, of which the total amount of petroleum coke imported from the United States was 3.54 million tons, accounting for 48% of imported petroleum coke. China imports high-sulfur sponge coke, high-sulfur projectile coke, and medium-low-sulfur projectile coke. In the past three years, China's petroleum coke imports have become more diversified, and the share of U.S. resources has continued to decline. The United States is the world's largest producer of petcoke, and the export volume of petcoke is increasing year by year. Every year, more than 80% of petcoke is exported to other countries, forming the three major export markets of China, Japan and India.


Lubricants (agents) and additives, etc.

China's overall import trade of lubricants (agents) and additives is relatively small. In 2017, it imported about 94,000 tons from the United States, accounting for 3% of the total import volume, and the trade volume was about 150 million US dollars. However, it needs to be emphasized that the lubricants (agents) and additives imported by China from the United States are highly technical, and there is currently no domestic substitute. Therefore, imports of such varieties may increase.