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Energy exports to play ‘massive’ role in any breakthrough in the US-China trade talks

Mnuchin: This is a trade 'dispute' not trade war from CNBC.

  • Treasury Secretary Steven Mnuchin said there is a “massive opportunity” for U.S. energy exports to China, after the trade partners reached a truce.
  • China has emerged as one of the biggest buyers of U.S. oil since the American government lifted an export ban on the raw material in 2015.
  • The Trump administration has also facilitated increased shipments of U.S. natural gas to China.

Energy will play a major role in a breakthrough in trade talks between the Trump administration and its Chinese counterparts, Treasury Secretary Steven Mnuchin told CNBC on Monday.

U.S. and Chinese trade negotiators agreed this weekend to put on hold tariffs that they have threatened against one another, after China agreed to purchase more American goods. The concession could move the needle on one of President Donald Trump‘s major goals: reducing the U.S. trade deficit with China.

To be sure, some economists have flagged challenges to increasing exports to China, from Beijing’s ability to facilitate the imports to American farmers and manufacturers producing at or near full capacity.

However, oil and natural gas production is one area of the U.S. economy that is indeed booming. Meanwhile, China, the engine of the global economy, is hungry for more fossil fuels as more drivers take to the nation’s roads and the government seeks to generate more electric power from cleaner-burning natural gas.

The Eagle Ford crude oil tanker sails out of the the NuStar Energy dock at the Port of Corpus Christi in Corpus Christi, Texas, U.S., on Thursday, Jan. 7, 2016.

Eddie Seal | Bloomberg | Getty Images
The Eagle Ford crude oil tanker sails out of the the NuStar Energy dock at the Port of Corpus Christi in Corpus Christi, Texas, U.S., on Thursday, Jan. 7, 2016.

“In energy, I think there’s a massive opportunity for the U.S. to become a major supplier of energy to China,” Mnuchin told CNBC’s “Squawk Box” on Monday. “They have incredible amounts of demand at these prices for our shale and our liquid natural gas.”

“I think we can easily get about $40 or $50 billion of energy, and if we can produce and send more with infrastructure, they can even take more,” he said.

That would be an ambitious target. U.S. oil and gas exports to China were worth $4.3 billion in 2017, according to Reuters.

The United States is already doing brisk trade with China, which has emerged as one of the largest purchasers of U.S. oil since the Obama administration reached a compromise with Congress to lift a 40-year export ban on raw crude.

“As the U.S. crude export trade evolves we’re seeing a growing trend of [very large crude carriers] being loaded, so that percentage of total exports is around 40-50 percent around any given month and the vast majority of those are heading to China,” said Matt Smith, director of commodity research at tanker tracking firm ClipperData.

The shale oil Mnuchin mentioned is extracted using advanced technology to free oil and natural gas from tight rock formations in places like western Texas, the Appalachian region and North Dakota.

Oil output from shale fields is soon projected to rise above 7 million barrels a day and has boosted total U.S. production to about 10.7 million barrels a day, according to preliminary government figures. The U.S. Energy Information Administration projects the United States will average 11.9 million barrels a day next year, surpassing No. 1 producer Russia.

The boom in oil production from western Texas has created bottlenecks in the region, causing prices for regional crude to fall as drillers struggle to get their product to market. Consequently, that oil is now trading at a big discount to international benchmark Brent crude, making it attractive to foreign buyers.

“When you have a Brent crude price at $80 and when you have a WTI Midland price at close to $20 below that, that’s only going to incentivize more crude oil exports leaving the United States and the growing trend of large vessels heading to Asia, and particularly China,” Smith said.

Mnuchin made clear on Monday that the trade will occur between companies, and it will have to be in the interest of both Chinese and U.S. firms.

China has historically used its leverage as the world’s second-largest oil consumer to influence crude prices, taking advantage of discounts among different grades of crude from around the world. However, the type of light, sweet crude that comes from shale is ideal for many Chinese refineries.

The Trump administration has already made progress opening the Chinese market to U.S. natural gas exporters. A year ago, the U.S. Commerce Department reached an agreement with Chinese authorities that allowed state-owned companies to negotiate long-term contracts with U.S. natural gas exporters, something Beijing had been hesitant to do.

Watch CNBC's full interview with Freeport LNG CEO Michael Smith

Watch CNBC’s full interview with Freeport LNG CEO Michael Smith  

In February, Cheniere Energy became the first American company to sign such a contract, inking a deal with China National Petroleum to supply 1.2 million tons per year from Cheniere’s Sabine Pass export terminal on the Texas-Louisiana border. China’s total imports of liquefied natural gas, or LNG, were 26.1 million tons in 2016, according to IHS Fairplay.

However, exports of U.S. LNG — natural gas cooled to liquid form — will be limited in how much they can help reduce the U.S. trade deficit with China, at least in the short term.

There are currently only two functional export terminals in the Lower 48 United States: the Sabine Pass facility and Dominion Energy’s Cove Point, Maryland, terminal, which started commercial operation in April. Three more are slated to come online through 2019, and the existing terminals are adding capacity.

According to Mnuchin, Chinese companies are preparing to enter a binding agreement to purchase LNG from a $43 billion gas project in Alaska. He said that deal could generate about $10 billion a year.

The Alaska Gasline Development, the project developer, could not immediately be reached for comment on Mnuchin’s forecast.

CNBC



24 Comments on "Energy exports to play ‘massive’ role in any breakthrough in the US-China trade talks"

  1. joe on Tue, 22nd May 2018 12:32 am 

    That will upset the Saudis. Will be nice to see if it actually happens that way.

  2. Davy on Tue, 22nd May 2018 5:39 am 

    The numbers are too far out of whack to get to the numbers they want. This was just staged results for domestic consumption on both sides. This is typical today with most big issues. Neither side addressed the tough issues because frankly they can’t do much without disrupting what the resulting economic system as evolved into. This is like all the anti-American dollar haters and their talk. There is only so much changes we can make there too. We are stuck with a brittle system that cannot change much without destructive results and the modern economic system cannot have destructive change. The modern system must have average annual growth or the Ponzi debt arrangement destructs. All nations are locked into this Ponzi debt arrangement or are dependent on other nations in it. Fossil fuel exports from the US are a farce. We export lots of products but there is limited room for much more actual oil and gas exports. How long with the shale stuff last anyway? If the economy declines this will decline because of the cost of producing it.

  3. Debbie on Tue, 22nd May 2018 8:30 am 

    Davy, I have a “Rush Limbaugh” friend who thinks the U.S is awash in oil…how do I show him otherwise?

  4. kanon on Tue, 22nd May 2018 9:24 am 

    This indicates that the U.S. ruling class believes the story that fracking has opened an incredibly vast reservoir of fossil fuel oil/gas. Despite the steep decline rate, the many thousands of gas wells continue to produce smaller quantities for some years. “The good news is that a Marcellus shale well will produce economic volumes of gas for thirty or more years.” shale-gas-decline-curves-demystified The bad news is that “the sharp increase in methane emissions correlates closely with the U.S. fracking boom.” methane-spike. In the first two decades after its release, methane is 84 times more potent than carbon dioxide. Methane the other important greenhouse gas So it is certain that greenhouse gas levels will rise to the point of severely damaging climate change. The ruling class is removing the environmental ground from under our feet, but they are creating vast potential for disaster capitalism.

  5. twocats on Tue, 22nd May 2018 11:17 am 

    Debbie,

    well if you believe dennis coyne over at peak oil barrel, he says LTO has quite a ways to run, from about 5 mbpd right now to over 8 mbpd by around 2023. If this is true then I imagine we WILL be awash in oil for another 5 years.

    that might not be forever but its certainly long enough that anyone left dooming on this site (including myself) is going to feel pretty silly for waiting half-a-life for an event.

  6. MASTERMIND on Tue, 22nd May 2018 11:28 am 

    Twocats

    Dennis coyne is a god damn moron. who believes in renewable s and EV’s like Tesla..And if you argue with him he will censor you and block you…I would listen to the IEA and Saudi’s and the world largest multi national bank HSBC, and the former head of the EIA if I were you..Which says peak oil is now and shortages are coming soon..

    https://oilprice.com/Energy/Energy-General/Are-We-Sleepwalking-Into-The-Next-Oil-Crisis.html

  7. LetStupidPeopleDie on Tue, 22nd May 2018 12:58 pm 

    I agree with MM, Dennnis Coyne is a moron. He believes that money in more important then net energy. He does not believe in the laws of physics. He think laws of money represent reality not the laws of physics.

    When peak oil hit, don’t help moron like him, let moron like him die.

  8. Boat on Tue, 22nd May 2018 3:39 pm 

    Your a moron if you can’t state your case with numbers. Two cats…..moron. mm….moron…. stupid people die….moron.

  9. twocats on Tue, 22nd May 2018 3:45 pm 

    number of numbers in my post: 11. number of numbers in boats post about idiots not posting numbers: 0.

    keep trying boat – you’re doing so well for a person with your…abilities. don’t let people take that away from you. i’m proud of you.

  10. Boat on Tue, 22nd May 2018 3:52 pm 

    Debbie

    https://www.eia.gov/dnav/pet/pet_move_wkly_dc_NUS-Z00_mbblpd_4.htm

    At the bottom of the chart you will see net imports. We are not awash with oil. However net imports of 12 million going down to 2.5 mbpd shows the impact of light fracked oil. Look at the history button and choose by month for a cleaner view.

  11. Boat on Tue, 22nd May 2018 4:08 pm 

    2cat

    https://www.eia.gov/petroleumdrilling/#tabs-summary-2

    Fracking comes from 7 areas in the US. Oil production from these areas is now over 7 mbpd. Not 5 now or 8 in 2023. Keep up or shut up.
    From my limited reading of Dennis Coyne he seems to use real numbers and stays current unlike most here, reguardless of his opinion.

  12. Boat on Tue, 22nd May 2018 4:10 pm 

    https://www.eia.gov/petroleum/drilling/#tabs-summary-2

  13. MASTERMIND on Tue, 22nd May 2018 4:13 pm 

    Boat

    Dennis once said that when oil peaks we will have a fast transition to renewables and EV’s just like smart phones..LOL He is as stupid as you are..

  14. MASTERMIND on Tue, 22nd May 2018 4:24 pm 

    Scumbag “Harley Davidson”

    https://imgur.com/a/WDa9Y3M

  15. Boat on Tue, 22nd May 2018 4:41 pm 

    In 2-3 years US shale may very well turn net oil imports into a net exports. They did it with Nat gas last year.
    The current billion dollar question is
    the Permian. There are production issues that have surfaced. Pipelines capacity, flaring regulation caps and worker experiance to list 3 reported problems. Temporary issues that may take up to 1-1 1/2 years to resolve.
    This is why the drilling productivity report from the eia is a good read. The bottom line in production, drilled wells and completed wells with history going back to 2013. You got that idiots?

  16. Boat on Tue, 22nd May 2018 4:50 pm 

    Mm

    5 years ago I think there were 3 of us not claiming doom on this site. We won the argument. I will reiterate my personal claim which I repeat……No crash in the nxt 10 years. No mad Max scenerio. The globe and all it’s problems are clearly more resilient than the fears of doom prognosticators.

  17. MASTERMIND on Tue, 22nd May 2018 5:00 pm 

    Boat

    I would shut up and listen to the IEA, Saudi’s, HSBC Multinational Bank, and the former head of the EIA..

    Are We Sleepwalking Into The Next Oil Crisis?
    https://oilprice.com/Energy/Energy-General/Are-We-Sleepwalking-Into-The-Next-Oil-Crisis.html

    German Military (leaked) Peak Oil study: oil is used in the production of 95% of all industrial goods, so a shortage of oil would collapse the world economy & world governments
    http://www.energybulletin.net/sites/default/files/Peak%20Oil_Study%20EN.pdf

  18. MASTERMIND on Tue, 22nd May 2018 5:03 pm 

    The End of the Oil Age is Imminent!

    Recently, the HSBC oil report stated that 80% of conventional oil fields were declining at a rate of 5-7% per year. This means that there will be an oil shortage of ~30 million barrels per day by 2030 and ~40 million barrels per day by 2040.
    http://www.scribd.com/document/367688629/HSBC-Peak-Oil-Report-2017

    What is mentioned far less often is that annual oil discoveries have lagged annual production since the 1980s.
    https://imgur.com/a/6dEDt

    Now, this problem has nothing to do with the recent decline in the oil price, which started in 2014. This has been an on-going problem for the past 30 years. Now, the IEA is predicting oil shortages by ~2020 due to declining exploration.
    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Here, the IEA blames this problem on the low oil price. But, this problem started in the 1980s. The problem is geological: we are running out of conventional cheap oil. Shale and tar sands are not the answer, either. Those resources are far too expensive, compared to conventional oil, because the global economy is based on cheap conventional oil. Expensive oil is not a replacement for cheap oil.

    Based upon the HSBC report and the IEA, the End of Oil Age will start around ~2020: there will be a dramatic economic depression due to exhaustion of cheap oil. This will cause a global economic collapse.

  19. Boat on Tue, 22nd May 2018 5:21 pm 

    Mm

    Lol, independent auditors just announced more oil Saudi than at anytime in it’s history. They could millions per day more if they thought it was in their interests. Turns out they think cutting production and making more money is smarter. So kiss my ass with your shortage shyt.
    The Russians claim they could add 400,000 BPD in a very short time and are adding to production capacity. Once again kiss my ass with your shortage shyt.
    The oil is there, the capacity to ship it is there. The decisions are political or calculated market manipulation. So kiss my,…….lol

  20. MASTERMIND on Tue, 22nd May 2018 6:07 pm 

    Boat

    Saudi Arabia’s Energy Minister Warns of World Oil Shortages Ahead
    https://www.wsj.com/articles/saudi-minister-sees-end-of-oil-price-slump-1476870790

    Saudi Aramco chief warns of looming oil shortage
    https://www.ft.com/content/ed1e8102-212f-11e7-b7d3-163f5a7f229c

    Saudi Aramco CEO sees oil supply shortage coming as investments, discoveries drop
    https://www.reuters.com/article/us-aramco-oil/aramco-ceo-sees-oil-supply-shortage-as-investments-discoveries-drop-idUSKBN19V0KR

    Saudi Arabia ‘may run out of oil to export by 2030’
    https://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/9523903/Saudis-may-run-out-of-oil-to-export-by-2030.html

    The collapse of Saudi Arabia is inevitable
    http://www.middleeasteye.net/columns/collapse-saudi-arabia-inevitable-1895380679

    IEA: Russia’s oil output to reach its peak in 2020
    http://vestnikkavkaza.net/news/IEA-Russia%E2%80%99s-oil-output-to-reach-its-peak-in-2020.html

  21. MASTERMIND on Tue, 22nd May 2018 6:11 pm 

    Boat

    Projection of world fossil fuels by country (Mohr, 2015)

    Over 900 different regions and subfuel situations were modeled using three URR scenarios of Low, High, and Best Guess. All three scenarios indicate that the consistent strong growth in world fossil fuel (coal, oil, gas) production is likely to cease after 2025. The Low and Best Guess scenarios are projected to peak before 2025 and decline thereafter. The High scenario is anticipated to have a strong growth to 2025 before stagnating in production for 50 years and thereafter declining.

    https://www.scribd.com/document/375110317/Projection-of-World-Fossil-Fuels-by-Country-Mohr-2015

  22. MASTERMIND on Tue, 22nd May 2018 6:12 pm 

    Dear reader,

    IEA Chief warns of world oil shortages by 2020 as discoveries fall to record lows
    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Saudi Arabia’s Energy Minister Warns of World Oil Shortages Ahead
    https://www.wsj.com/articles/saudi-minister-sees-end-of-oil-price-slump-1476870790

    Saudi Aramco chief warns of looming oil shortage
    https://www.ft.com/content/ed1e8102-212f-11e7-b7d3-163f5a7f229c

    According to the German Army leaked study. When the oil shortages hit, Wall street will crash, the public will lose all faith/trust in their institutions, and the global economy and world governments will collapse..
    http://www.energybulletin.net/sites/default/files/Peak%20Oil_Study%20EN.pdf

    Anarchy soon! And then its fight club!

  23. MASTERMIND on Tue, 22nd May 2018 6:26 pm 

    Boat

    The world has been using more oil than it has discovered for 34 years straight..And last year we consumed ten times as much oil as we discovered..It boggles the mind how anyone could deny peak oil is near based on these facts.

    https://imgur.com/a/rBtIrfg

  24. twocats on Tue, 22nd May 2018 7:52 pm 

    I was referring to shale oil only, essentially horizontal wells not vertical ones.

    https://shaleprofile.com/index.php/2018/05/10/us-update-through-january-2018/

    and if what you were saying is true we would be more f’d not less!! you complete and utter nimrod. that would mean were only producing 3 million barrels of conventional a day. You post links and numbers like you have any understanding of anything. complete and utter tool and no one respects you on this blog. but keep posting – you are comic relief!

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