China's proposed tariffs on U.S. petroleum imports, part of a mounting trade war between the two countries, would crimp sales to the shale industry's largest customer, adding new pressure on U.S. crude prices, energy executives and analysts said in interviews this week.
China has said it would slap a 25% tariff on imports of U.S. crude, natural gas and coal on July 6 if Washington went ahead, as planned, with its own tariffs on Chinese goods that day.
Energy would be added for the first time to a burgeoning trade dispute that has hit imports of Chinese metals and solar panels, and exports of U.S. medical equipment and soybeans.
Targeting petroleum puts the Trump administration's "energy dominance" agenda in Beijing's cross-hairs as U.S. shale has grabbed share from Middle East suppliers in Asia.
China is the largest customer for U.S. crude, importing about 363,000 barrels per day (bbl/d) in the six months ended in March. Thomson Reuters shipping data shows those exports have increased since, rising to an expected 450,000 bbl/d in July.
"It is going to hurt everyone for the short term," said Ron Gasser, vice president at Mammoth Exploration LLC, a West Texas shale producer. While U.S. crude will continue flowing to market even with tariffs, "it'll force you to put your oil somewhere else, and it'll cost you more" to line up other buyers.
U.S. oil exports have steadily grown since the four-decade-old ban on crude exports was lifted at the end of 2015.
China's tariff threat caught U.S. producers off guard because it had been discussing buying more U.S. energy and agricultural products to reduce its $375 billion trade surplus with the United States. The levies could boost suppliers of West African crude at the expense of U.S. exports.
The tariffs are "creating a whole new set of uncertainties on top of what's already there," Daniel Yergin, vice chairman of consultancy IHS Markit, said on June 19 as he arrived in Vienna to attend this week's OPEC's International Seminar.
On June 22, OPEC oil ministers will gather to consider sharply increasing the group's production this year, a move advanced forth by Saudi Arabia and Russia. The change is opposed by members Algeria, Iran, Iraq and Venezuela. The U.S. also recently set new sanctions on Iran's petroleum industry, which is expected to disrupt oil flows.
"The global oil industry didn't really worry or think about trade issues. Now, trade issues are moving really pretty fast up the agenda," said Yergin.
The impact likely would be temporary as U.S. oil becomes less attractive to Chinese buyers. But the tit-for-tat expansion of tariffs has U.S. oil industry officials and politicians calling on the Trump administration to move cautiously.
The American Fuel and Petrochemical Manufacturers Association on June 19 called on the president "to work with China—and all nations—to reduce barriers to competition rather than promote them."
U.S. Senator Michael Enzi, Republican of Wyoming, a coal and oil producing state, wants the administration to be "wary of how these retaliatory measures from China could seriously impact the industry," spokesman Max D'Onofrio said June 18.
In coal country, there are worries the trade war could harm exports, said Steve Roberts, president of the West Virginia Chamber of Commerce. "China is an enormously important trading partner," he said.
Some U.S. producers said growing demand for U.S. energy would overcome the impact of China's tariffs just as higher oil prices this year have not slowed the global thirst for oil and natural gas.
Gary C. Evans, CEO of shale producer Energy Hunter Resources Inc., called the tariffs "a lot of saber rattling" that will not hurt exports of U.S. crude oil or liquefied natural gas, the latter a fuel that China has not included on its list of products facing a tariff.
"Crude oil is a fungible global commodity," Evans said. "Without growing U.S. crude supply and exports, global prices could today be multiples higher than they currently are."
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