BEIJING, CHINA – NOVEMBER 9: U.S. President Donald Trump and China’s President Xi Jinping attend at a state dinner at the Great Hall of the People on November 9, 2017 in Beijing, China. (Thomas Peter – Pool/Getty Images)
Two important energy deals were proposed during U.S. President Trump’s trip to China, paving the way for Chinese energy investment in West Virginia and Alaska. The deals would increase dependence between the two nations and enhance collaboration in this key industry as the U.S. transitions into a role as an energy exporter. While the U.S. is in need of energy investment, China’s government has been encouraging energy firms to diversify abroad, in part in order to gain access to fossil fuels. The negotiations don’t come without caveats, which include both practical and political considerations.
The deals were proposed in the form of memorandums of understanding (MOUs). MOUs were signed between China Energy Investment Corp. and West Virginia to invest $83.7 billion in shale gas, power, and chemical projects, and between Sinopec and Alaska Gasline Development Corp. to pipe liquid natural gas (LNG) from northern to southern Alaska, with investments of up to $43 billion. Smaller MOU deals were signed between Cheniere Energy and China National Petroleum Corp for the sale of LNG and between Delfin LNG and China Gas Holdings Ltd. for LNG.
U.S. as energy exporter
The United States is in the process of transforming from an energy importer into an energy exporter, as the production of shale oil and gas ramps up. By the late 2020s, according to analysis from the International Energy Agency (IEA), the U.S. will become a net oil exporter, and will become a net natural gas exporter this year. Much of the energy exports will go to China, which is expected to become the largest global oil consumer by 2030, surpassing the U.S.
The U.S. welcomed China to import liquefied natural gas from the United States within the 100 Days Plan agreed upon in May, paving the way for the new deals under discussion. China’s rapidly growing demand for LNG in the heating of homes and businesses make it a prime export target for American firms.
The deals, if solidified, would bring additional investment into the U.S. and provide new sources of energy for China. The projects in Alaska and West Virginia are also expected to generate thousands of jobs and larger economic benefits. The Alaskan governor, Bill Walker, has struggled to find partners for construction of a natural gas pipeline, with major firms BP, ExxonMobil, and ConocoPhillips backing out of the project. Sinopec’s proposed investment might be just the partnership Alaska is looking for. West Virginia equally welcomes China Energy Investment Corp’s proposed investment, as the decline of coal and low levels of income have left many households impoverished.
For China, the agreements will provide new sources of energy, as China has become heavily dependent on energy imports, purchasing from abroad around 65% of its crude oil supply and 33% of its natural gas supply. China has also been attempting to diversify its energy suppliers in order to ensure energy security, and imports from the U.S. will allow China to source from another region outside of Russia and Iran.
Chinese investment in American fossil fuels represents a new energy relationship between China and the U.S. China has been wary of the United States’ potential interference in its energy supply, fearing that the U.S. could cut off its supply at the Malacca Strait, should political conflict arise. The U.S. Department of Commerce has attempted to allay China’s fears that the U.S. would use energy to retaliate against China by promising, within the 100 Days Plan, that the U.S. would treat China just as it does any other country that lacks a free trade agreement.
The proposed deals don’t come without caveats. It has been pointed out that these agreements are nonbinding and not yet solidified. The West Virginia deal, although estimated at $83.7 billion, will span a twenty-year period. The Alaska deal has yet to incorporate financing or purchase agreements, and its history of major partners withdrawing from cooperation may bode poorly for the economics of the proposed pipeline.
It is also unclear whether the Chinese will be fully convinced that the United States will refrain from clamping down on energy supplies as a means of political protest. On the reverse side, political opinion against Chinese investment in the U.S. has been little addressed. Although President Trump appears to embrace Chinese participation in the American energy sector, there are those who believe that an increased Chinese presence in the U.S. could undermine the American market-based economy.
Still, if the agreements do come to fruition, they will fill some of the needs of the two most influential nations and perhaps dampen some of the political concerns surrounding Chinese entrance into the American energy sector.