Additional Tariffs Would Hurt USA Oil and Gas Industry

(August 7, 2019) — The latest U.S. tariffs threatened against Chinese imports would hamper U.S. 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 (API) argued at U.S. Trade Representative (USTR) hearings, as reported by S&P Global Platts. 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 Office of the U.S. Trade Representative held seven days of testimony in Washington, D.C. and heard testimony from more than 300 companies and trade organizations on the Section 301 tariffs. “China’s expected retaliation against U.S. crude oil, refined products, and LNG would disadvantage U.S. exports and could cascade into U.S. domestic production,” Aaron Padilla, API’s senior adviser for international policy, told USTR in writ- ten comments. “U.S. 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 U.S. crude oil in 2018, has put sharp brakes on light-sweet and medium- sour U.S. crude purchases since last October amid the U.S. China trade dustup, S&P Global Platts comments. China imported 6991 bbld of crude from the U.S. in the first quarter of this year, down sharply from 316,771 bbld in the first quarter last year, according to data from China’s

General Administration of Customs (GAC).

U.S. crude flows to China recovered to 116,750 bbld in April, the latest GAC data showed, but only a few Chinese refineries booked U.S. crude cargos for May-June delivery, according to traders and analysts with knowledge of the matter. China has backed off from buying U.S. 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 U.S./China dispute initially affected spot U.S. LNG cargos, but has recently started to have a more severe impact on long-term investments in U.S. liquefaction and export projects. The recent meeting between Trump and Chinese President Xi Jinping at the G-20 leaders’ summit in Osaka, Japan will likely determine the next phase of the trade disagreement.

API argued at the USTR hearing that the U.S. 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 U.S. imports 75% to 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%. “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 suitable, API asserted.

Halliburton, Industrial Oil Products, Newpark Drilling Fluids, and AES Drilling Fluids also testified 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.

(SOURCE:

, August 5, 2019. PHOTO: Keith Skipper

)