World’s largest trade pact led by China could crush US gas exports
Recent political and geopolitical developments in the United States and Asia could undermine American energy exports to the biggest regional importer of crude oil, natural gas, and coal. Two weeks ago, fifteen countries in the Asia-Pacific region—including China and Australia—signed the world’s newest and largest trade pact. The Regional Comprehensive Economic Partnership (RCEP) Agreement is set to gradually reduce and, in some cases, eliminate, trade tariffs on goods, including commodities.
The biggest trade agreement globally includes the ten members of the ASEAN bloc plus Australia, China, Japan, South Korea, and New Zealand. The combined gross domestic product of the countries part of the agreement is estimated at around US$26.2 trillion, or about 30 percent of global GDP.
In terms of commodities trade, the pact includes the world’s top crude oil importer China; the biggest importers of liquefied natural gas (LNG)—Japan, China, and South Korea; one of the world’s top LNG exporters Australia and other LNG exporters such as Malaysia and Indonesia; and top coal exporters Australia and Indonesia.Also on rt.com US left out as Asia Pacific nations strike world’s biggest trade deal
The trade pact, nearly a decade in the making, is not without controversy—it is viewed as part of additional strengthening of China’s position in the global supply chains.
Notably, the world’s third-biggest crude oil importer, India, is not part of the agreement after talks failed in recent years, although the signatories to the pact said that they were open to India joining at some point in the future.
The world’s newest trade pact could bolster commodity trade among its members, thanks to reduced or eliminated tariffs on oil, gas, and coal among those members. Analysts believe that membership in the trade bloc could help to defuse the current strained relations between Australia and China, a major exporter and a top importer of fossil fuels in the region, respectively.
Yet, the pact could further sideline US exporters of energy to the world’s most resource-thirsty region, especially if the upcoming Biden Administration makes good on its promise to ban new drilling on federal lands and waters, Ariel Cohen, Senior Fellow at the Atlantic Council and Founding Principal of Washington DC-based risk advisory International Market Analysis, wrote in an article in Forbes.Also on rt.com India seeks tighter control on Chinese goods coming in from 3rd countries following deadly border conflict
Biden’s return to multilateralism—in stark contrast with the isolationist policies of President Donald Trump—could help US trade with countries in Asia Pacific, even if the tariffs on China placed by President Trump in the trade war are not expected to be eliminated soon by the Biden Administration.
However, Biden’s pledge to ban new drilling on federal lands and waters could limit the ability of the United States to bolster its energy exports to the world’s biggest import region, Asia.
Biden’s climate agenda and potentially lower US oil and gas production could leave more room for Australia and Indonesia, for example, to pick up market share from the United States in LNG trade, while Middle Eastern oil producers could fill in a possible gap in crude oil that America could leave, Cohen argues.
According to the American Petroleum Institute (API), a federal leasing ban could lead to annual US natural gas exports declining by 800 billion cubic feet by 2030, while US crude oil imports from foreign sources could increase by 2 million barrels per day (bpd) by 2030.
Yet, in the shorter-term, US LNG producers and exporters look upbeat about the prospects of increased trade with China.
US exports of LNG to China are set to grow in the coming years, thanks to the first commercial US-Chinese agreement for term supplies since the trade war that started in 2018 decimated American LNG exports to China.
Cheniere Energy has just signed a framework agreement with China’s Foran Energy Group to sell 26 LNG cargoes to the Chinese company until 2025. The deal will not help Chinese LNG imports this year as deliveries could start in 2021 at the earliest, but the term nature of the agreement—as opposed to spot purchases—signals that the US firm believes that the Chinese market is an opportunity for American exporters.