CHINA: THE TOP BUYER
FT - China was the top foreign buyer of US crude in February, according to data that show the growing interdependence of the world's big energy-consuming nations at a time of heightened geopolitical tensions.
When Donald Trump hosts Xi Jinping at his Florida resort on Thursday, Chinese exports and investment in the US will be high on the agenda. But new global oil trends combined with robust bilateral agricultural trade signal the growing importance of raw materials in a relationship previously dominated by US investment in Chinese manufacturing and American consumption of made-in-China goods.
China ranks second among foreign buyers since Washington's late-2015 lifting of a 40-year ban on American crude exports, in response to the shale revolution.
Exports have begun flowing even as China goes head-to-head with the US as the world's top oil importer. Within the next three to five years China is expected to become the world's largest oil-refining nation, surpassing the US.
Zhong Fuliang, vice-president of Unipec, the trading arm of Chinese oil group Sinopec, said North America could take on the mantle of top swing supplier over the next decade. "We believe Trump's policies will benefit the traditional energy industry including shale and coal so we are pretty optimistic," he told an oil industry forum.
Other experts say that US crude exports will continue to flow mainly to other countries, displacing Middle Eastern oil that would then flow to China.
"The Middle East is very risky, so we need to diversify, to look at all continents," said Lin Boqiang, dean of the China Institute for Energy Studies at Xiamen University. "But it's all still new and will take time. For the foreseeable future, we still remain dependent on the Middle East."
China's oil imports from the US still come in well below those from its top suppliers Saudi Arabia, Russia and Angola.
US shipments accounted for less than 1 per cent of China's total imports of more than 8m barrels a day in the first two months of this year. China has also purchased spot cargoes of US liquefied natural gas, another export made possible by the shale revolution.
The rise of crude oil exports strengthens the US position as a commodities exporter. The country already supplies about $20bn a year in agricultural crops to China, ranking just below machinery (including electrical machinery) exports. Services exports to China take the top spot in bilateral trade, at more than $45bn.
To date, Canada has taken about half of the 239m barrels exported since the US ban was lifted, while China bought only 7 per cent, according to US census bureau data. But recent pipeline upgrades, and the surge in shale oil and gas production since the 2000s, has created ample supply and pushed output from Texas and Oklahoma into the Gulf Coast, depressing prices enough to justify the shipping cost to Asia.
Size restrictions at the Panama Canal mean that smaller Suezmax ships must carry crude to the Pacific Ocean, where it is loaded into larger ships to make the long journey to Asia. But Unipec has chartered larger ships known as VLCCs to take crude from the Caribbean around South Africa and across the Indian Ocean to China, Mr Zhong said.
Meanwhile, Chinese oil groups are positioning themselves for the Gulf Coast and Caribbean oil market's growing role in setting world crude prices. Unipec owns a blending and storage facility in the Virgin Islands, while Guangdong Zhenrong Energy is negotiating with Venezuela's cash-strapped national oil company PDVSA to operate and expand its Isla refinery in Curacao. Meanwhile, politically connected Chinese entrepreneur Xiao Jianhua brokered the Chinese purchase of 24 per cent of Antigua's state-owned West Indies Oil Co in 2015 before he disappeared into the hands of mainland security forces this year.