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Page added on August 12, 2018
PetroChina To Impose Temporary Halt On US LNG Purchases
Energy traders were on alert when Reuters reported last week that Chinese energy giant, PetroChina – the world’s first company to hit (and lose) a $1 trillion market cap long before Apple – was in advanced discussions with Qatar to purchase liquefied natural gas (LNG) under short- and long-term agreements. The superficial explanation was that China needed to secure generous amount of LNG to supply its push to replace coal with cleaner burning natural gas to reduce air pollution. And sure enough, after Beijing started the program last year, China had overtaken South Korea as the world’s second-biggest buyer of LNG.
The deal also made sense from the perspective of the “blockaded” Qatar, the world’s biggest LNG producer, as the isolated Middle Eastern country sought buyers for a planned output expansion.
As it turns out there was another reason for the PetroChina supply diversification: PetroChina may temporarily halt purchases of spot U.S. liquefied natural gas spot cargoes through the winter to avoid potential tariffs as a result of the trade war between the U.S. and China, Bloomberg reported on Sunday according to sources with knowledge of the strategy.
Under the plan, PetroChina would boost buying of spot cargoes from other countries or swap U.S. shipments with other nations in East Asia to avoid paying additional tariffs, said the people, who asked not to be identified because the information isn’t public. PetroChina, a unit of the state-owned China National Petroleum Corp., couldn’t immediately comment when contacted by Bloomberg.
In retaliation to the latest round of tariffs imposed on China by the US, Beijing responded that it was considering a 25% tariff on U.S. LNG, which had been missing from previously targeted goods, direct hitting American gas exporters.
The move comes ahead of the winter heating season when demand and prices typically peak and shows two things: i) that Xi Jinping may be willing to suffer some pain to avoid backing down from U.S. President Donald Trump’s trade dispute, and ii) China is planning on lasting out the trade war for the long haul, suggesting that a near-term solution looks unlikely.
“If the tariff is implemented before winter, it would potentially increase the competition for non U.S. supply to the Asian market and hence drive up spot prices in Asia this winter,” Maggie Kuang, an analyst with Bloomberg NEF in Singapore said in an email. “Australia, Qatar, and Southeast Asia will most likely benefit.”
Meanwhile, US LNG exporters such as Cheniere would be hit hardest as a result of the import halt. PetroChina in February signed a 25-year deal to buy LNG from Cheniere Energy with a portion of that supply expected to start this year. That said, while China is currently the third-largest buyer of LNG, American cargoes only made up about 5.7% of its imports over the last year, according to Sanford C. Bernstein.
China may may have a more strategic view: yesterday Iran announced that another state-owned Chinese giant, China National Petroleum Corp (CNPC) had taken over the share of France major Total in the development of the giant South Pars oil field, giving the Chinese company an 80.1% stake in the project.
Clearly unconcerned about the threat of US sanctions, and taking advantage of the ongoing chaos in the middle east, China – which recently launched its own petroleum futures contract which many say is the first step toward internationalizing the PetroYuan – is aggressively ramping up its influence in the Gulf with the intention of becoming a dominant force in the regional energy market.
Meanwhile, Russia is making no secret of its intention to dedollarize its oil industry, with the unstated purpose of shifting toward the Petroyuan axis.
As we reported earlier today, speaking in an interview for the Rossiya 1 TV channel, Russia’s Finance Minister Anton Siluanov said that Russia “aims to keep reducing its investments in American securities” following new U.S. sanctions and said that the “US dollar is becoming an unreliable tool for payments in international trade.” The minister also hinted at the possibility of using national currencies instead of the dollar in oil trade.
“I do not rule it out. We have significantly reduced our investment in US assets. In fact, the dollar, which is considered to be the international currency, becomes a risky tool for payments,” Siluanov noted.
And with Russia hinting that it is close to giving up on the dollar entirely in oil trade and shifting to a petroyuan-based regime, how long before other nations follow suit, especially as China no longer shows any qualsm when it comes to severing existing US energy ties – whether in retaliation to trade war or otherwise – and pursuing alternative sources of production?
12 Comments on "PetroChina To Impose Temporary Halt On US LNG Purchases"
makati1 on Sun, 12th Aug 2018 7:27 pm
East movin’ up. America moving down.
“…with Russia hinting that it is close to giving up on the dollar entirely in oil trade and shifting to a petroyuan-based regime, how long before other nations follow suit, especially as China no longer shows any qualms when it comes to severing existing US energy ties – whether in retaliation to trade war or otherwise – and pursuing alternative sources of production?”
Slip slidin’…
makati1 on Sun, 12th Aug 2018 8:05 pm
Food for thought:
“China has foreseen the danger of a US dollar shortage, and has tried to arrange things in Asia to allow the region to ride out a dollar squeeze. As a result, Asia is likely to be a zone of relative stability in the coming turmoil.
For the first time in almost 20 years, cash is an alternative to risk assets. The yen is probably the cheapest currency there is today. Cash should be held in yen.” I’m holding…lol
https://www.theburningplatform.com/2018/08/12/charles-gave-the-recession-of-2019/#more-181362
China fail? Not likely.
Antius on Mon, 13th Aug 2018 4:56 am
Interesting article.
https://www.zerohedge.com/news/2018-08-12/black-plague-and-nuclear-energy
Davyy on Mon, 13th Aug 2018 5:19 am
“China has foreseen the danger of a US dollar shortage, and has tried to arrange things in Asia to allow the region to ride out a dollar squeeze”
Slip slidin, wishful thinking of a senile anti-American Sinophile. China is one of the places where the global reset has started and its contagion is spreading now. The trade war is ripping apart the inconsistencies that is China’s economic system. There is no arranging things in China just reacting to the dysfunction they have built into a system that tries to do contradictory policy. They are stoking credit as they try to reduce leverage. They have their national financial team manipulating the market making it one of the least free markets of any of the big economic powers. Trying to control China’s markets as they do just allows financial pressures to build and ferment for a future crisis. Turkey and Italy are the other contagions. The US will ride this decline down also. There is no hiding from these forces.
fmr-paultard on Mon, 13th Aug 2018 5:39 am
aswang/aka 3rd world. almost 10% of phils have inadequate sanitation and they suffer intestinal illnesses. i don’t want to live there. i don’t like feeling sick so i try really hard to avoid diseases. i feel healthy all the time bro. it’s hard to be healthy if water is containminated
fmr-paultard on Mon, 13th Aug 2018 5:43 am
aswang, half of china lack modern sanitation. i don’t want to be there either. supertards gave me safe electricity and indoors plumbing. i’m not sick because of it. you stay in 3rd world don’t come back
Antius on Mon, 13th Aug 2018 7:45 am
Charles Hugh Smith ‘Of Two Minds’ Blog and ‘Von Mises Institute’ is predicting that the US may ‘collapse’ about 1 decade from now.
https://www.oftwominds.com/blog.html
Not so long ago, that idea would have been laughable. Now, with the US heading into another financial crisis laden with debt; with seemingly irreconcilable social problems; widescale corruption and a president that appears amateur; I’m not so sure.
Smith makes the observation that the decline of the US in many ways mirrors the decline of the Soviet Union.
Antius on Mon, 13th Aug 2018 10:06 am
Trump’s trade and economic policies are pushing China towards collapse.
https://www.zerohedge.com/news/2018-08-13/three-things-are-deadly-emerging-markets-and-turkey-might-provide-trigger
“Turkey is a canary in the coal mine; watch global liquidity & China”
“The concern is that lurches towards protectionism and trade wars are now compounded by Fed policies to drain liquidity and raise cost of capital, almost irrespective of consequences for a wider world. Even ECB and BoJ are being reluctantly dragged along. At the same time, China is caught in the middle of its de-leveraging, and it clearly uses Rmb to help economy and reduce trade drag. Less liquidity, rising US$ & declining Rmb are deadly for EM equities. Turkey might just provide a trigger. Watch China and how it manages liquidity”
Davy on Mon, 13th Aug 2018 10:41 am
“Italy Gives ECB An Ultimatum: “Guarantee” Bond Spreads Or “Euro Will Be Dismantled”
https://tinyurl.com/yalrd66o
“While the world remains focused on ground zero of the latest emerging markets crisis, Turkey, and whether contagion from its plunging currency will further pressure global assets, a new – well old – threat has emerged. In an unexpectedly sharp attack on the ECB, in two separate posts on Twitter, Claudio Borghi who is the euroskeptic head of the budget committee in Italy’s lower house, stressed that not only is Italy’s spread with German bonds widening, but also the ones of other nations like Spain are doing so. He added that “either the ECB will provide a guarantee or the Euro will be dismantled” as “there is no third option.”
“Commenting on the interview, several sellside desks have cautioned that this seems like something the ECB is unlikely to do as it represents a destabilizing stance and is thus bearish for the EUR. In a subsequent interview, moments after his tweet, Borghi said that “there cannot be a system at the mercy of market movements” without any shields by the central bank – in other words, Borghi appears to be very much against a free and efficient market in which price discovery is allowed especially on such assets as Italian bonds – and noted that “it is significant that an external event like Turkey that has nothing to do with Italy unleashes such an effect.” Borghi warned about the upcoming end of the ECB’s QE which as we noted previously has been the sole buyer of Italian debt, and whose absence threatens to send Italian bond yields sharply higher: “Nowadays there is a system that has a residual amount of quantitative easing, but with everybody knowing that this is being phased out and will come to an end soon”
rockman on Mon, 13th Aug 2018 11:20 am
As outlined early the Chinese imports of US LNG represents an insignificant portion of US LNG exports.
Antius on Mon, 13th Aug 2018 12:25 pm
Big trouble in little China. Is China finally bust?
https://www.zerohedge.com/news/2018-08-13/secret-truth-about-china-us-and-us-dollar
https://www.zerohedge.com/news/2018-08-13/ex-chinese-central-banker-some-disturbing-factors-have-emerged-chinese-market
No centrally planned economy has ever been a long-term success. So long as Chinese wage rates were low compared to the rest of the world, they could absorb inefficiencies. No longer.
makati1 on Mon, 13th Aug 2018 7:12 pm
Antius, Chinese wage rates are still way lower than most of the world. I expect China to weather this current financial storm, mostly caused by the Us and the Western banking system.
You do realize that there is a financial war going on? The petrodollar is weakening and the yuan is rising. That means the end of the empire eventually. When the Saudis swing to yuan, Game Over!