WoodMac on the latest US-China trade tariffs impact on oil and chemicals business
Following China's retaliatory tariffs on US goods, experts at Wood Mackenzie commented on the impact the tariffs will have throughout the oil, gas and chemicals industry.
On oil: Suresh Sivanandam (senior manager, Asia refining)
US crude exports to China have been in the range of 300 kb/d in Q1 2018, accounting for about slightly above 20% of total crude exports. This shows that China is a significant outlet for US crude exports and the early indications are that the exports would be much higher in Q2 2018 given the lower WTI-Brent differential which made the arbitrage to Asia look more attractive. US crude exports to China fit well with the trend of declining Chinese domestic crude production and also a growing refining capacity in China. Even in the medium term to 2023, we forecast US crude exports to China to increase two-fold from the current levels, on a free trade basis.
Hence, the imposition of crude tariffs by China will impact the US-China trade and adds a significant downside risk to our base forecast for the medium term. While China could secure the crude from alternative sources such as West Africa which has similar quality
On chemicals: (Joel Lindahl, VP Olefins Chemicals Research)
Propane – The initial effect on US propane exports would be minimal, as it would take time for China to source backup propane. The US is the largest propane exporter in the world and is the primary propane growth engine in the world, especially when OPEC curtails oil production.
Propane prices rose substantially last year when US production growth underwhelmed, requiring the cancellation of multiple US propane export cargoes. Longer term, the US would target European
Polyethylene and other ethylene derivatives – if the tariff goes through, Middle Eastern producers would be the incremental polyethylene supplier to China. Middle Eastern volumes allocated to Europe or Africa would face increasing competition from US material. But if US producers had to target China, US netbacks could fall $200/ton.
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