(Yicai Global) July 25 -- China, whose imports of liquefied natural gas are growing faster than any other country, could offer to buy more LNG from the United States to reach an agreement in the ongoing trade negotiations, according to a Chinese energy investment expert at global law firm Dechert.
"Definitely, China is willing to buy US shale gas," shipped to the country as LNG, if that could close the deal, Hong Kong-based Partner Xiao Yong said in an exclusive interview with Yicai Global.
China has been shifting to cleaner-burning LNG from coal over the past several years to help protect the environment, but it raised import duties on US LNG to 25 percent from 10 percent in June amid a year-long trade dispute between the world's two biggest economies. To help narrow the US trade deficit with China, the Chinese government has repeatedly proposed buying more US agricultural and energy products, but the pair is still looking for the right ingredients for a deal.
Before China hiked the tariffs, US shale gas prices were attractive, according to Dechert's feasibility studies on shale gas firms before the trade dispute, Xiao said. But the dispute caused those deals to stall, he added.
Top officials from the world's two biggest economies will resume face-to-face trade talks in Shanghai next week. US officials led by Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer will meet with the Chinese negotiating team from July 30 to 31.
A deal could erase the 15 percent boost to the earlier 10 percent tariff on US LNG that China added in June, as well as spur the Chinese government's efforts to shift to cleaner-burning LNG from coal. Beijing has repeatedly proposed buying more US agricultural and energy products during the trade negotiations.
Belt and Road
China used to be one of the biggest importers of US LNG, but only one vessel carrying the fuel left the US for China this year, according to Reuters. China has the world's largest reserves of shale, or 31.6 trillion cubic meters, according to last year's report from the United Nations Conference on Trade and Development. However, high fracking costs and government anti-smog measures have kept the nation reliant on imports.
If access to the US market narrows, China may buy more energy from Russia, the Middle East, Indonesia and Australia, Xiao suggested. Chinese firms do business where they are welcome and the countries with the most friendly environments for them are often those that participate in China's Belt and Road Initiative, according to Xiao. China has treaties with dozens of Belt and Road nations.
If the US market does open up for Chinese firms again, they are not there just to buy products. Chinese firms may invest in upstream businesses and then benefit from the whole supply chain even if they pay a bit more in their downstream procurement, Xiao said.
The same logic applies to green energy. If Chinese firms want to do more renewables business offshore they would make sure to sell their own equipment as part of engineering, procurement and construction contracts, the lawyer said. Unfortunately, clean energy is not yet economically viable on a large scale, he added.