China Trade Fight Puts Billions in U.S. Energy Projects in Doubt

(Bloomberg) -- China Energy Investment Corp. pledged almost $84 billion in shale gas and chemical manufacturing projects across West Virginia after President Donald Trump’s trade mission to Beijing in November, but when it came time to discuss details officials were a no-show.

The chief executive and other officers of the world’s largest power company canceled a visit to a petrochemical conference in Pittsburgh, where the projects were to be discussed, casting doubt on their fate amid an escalating trade war between the U.S. and China.

“In light of the ongoing dispute between the U.S. and China on trade, the China Energy team decided right now is not the right time for them to come and visit,” said Brian Anderson, director of the West Virginia University Energy Institute, an arm of the school that recently signed an memorandum of understanding to work collaboratively with China energy on research and training programs.

The U.S. is due to impose tariffs on $34 billion of Chinese imports from July 6, and Trump has threatened to impose levies on another $200 billion of Chinese goods. That has put in jeopardy some of the $250 billion in trade deals between U.S. companies and their Chinese counterparts announced in November when relations with the country were warmer, including many non-binding spending agreements on energy projects.

Among them was a joint agreement by China Petrochemical Corp., known as Sinopec Group, with Alaska Gasline Development Corp. to advance a $43 billion liquefied natural gas project. Another involved industrial gases company Air Products & Chemicals Inc.’s plan to form a joint venture with state-owned Yankuang Group Co. to operate an air separation, gasification and syngas clean-up system for a $3.5 billion coal-to-syngas production facility.

“Everything is in jeopardy,” said Barry Worthington, executive director of the U.S. Energy Association, a group of organizations, corporations and government agencies working on energy issues. “We have a shadow now over both investment and trade relations with China and that shadow doesn’t do anybody any good.”

The trade issues with China show no sign of abating. Bloomberg reported Sunday that the Treasury Department is planning to heighten scrutiny of Chinese investments in sensitive U.S. industries -- including new-energy vehicles, robotics and aerospace -- under an emergency law usually reserved for economic and national security threats. Treasury Secretary Steven Mnuchin denied in a tweet the measure would be aimed at China, while White House trade adviser Peter Navarro later indicated that the restrictions won’t be as damaging to growth as markets anticipate.

“These trade deals are moving targets and there are negotiations ongoing all the time,” Energy Secretary Rick Perry told reporters Monday. “When you push over here, you may bulge out a little over here. We are a long way to getting trade deals finalized.”

Perry called Trump “a very hard trader” who is “not apt to blink.”

Spokesmen for China Energy and Sinopec didn’t immediately respond to requests for comment.

Even before trade tensions worsened, many of the deals were considered tentative. The non-binding MOU between China and West Virginia for instance, proposed an investment larger than the state’s gross domestic product over a 20 year period, but few details have been released. Plans include power generation, chemical manufacturing and underground storage of natural gas liquids derivatives, according to a statement from the state’s Department of Commerce.

Cheniere Lands First Deal to Send LNG From Shale to China

And not all of the projects are at risk. A MOU signed between Cheniere Energy Inc., the only exporter of U.S. natural gas from shale fields, and China National Petroleum Corp. resulted in a 25-year contract in February. In 2017 alone, demand for the fuel in China jumped 46 percent, according to Energy Aspects Ltd.

For other projects, funding could still come from other sources if China’s investment falls through. “I would say the funding from China is up in the air,” said Kevin DiGregorio, executive director of the Chemical Alliance Zone, a West Virginia non-profit that promotes investment in the state’s chemical and natural gas industries.

The agreement between Sinopec and Alaska Gasline, while non-binding, was seen as a boost to a project sought for decades to construct an 800-mile pipeline to send gas from Alaska’s North Slope to a proposed export facility in Nikiski, on the state’s southern coast. The state of Alaska, China Investment Corp. and the Bank of China Ltd. also signed the agreement, though it didn’t include any financial commitments or gas purchasing agreements for the project known as Alaska LNG.

Behind the Forecasts: Asian Growth Target Implications for LNG

But the future of the project, which is designed to produce 20 million metric tons a year of LNG, “is very much linked to U.S.-China diplomatic relations amid escalating trade and investment tensions,” Hugo Brennan, senior Asia analyst at global risk consultancy Verisk Maplecroft, said in an email.

“Sinopec was following Beijing’s directives when it inked the non-binding agreement, a decision driven by political dynamics more than commercial strategy,” Brennan said. “The Alaska LNG and the China Energy deals were both signed during a high point in Trump-Xi relations. By the same token, the projects now risk becoming victims of the deteriorating bilateral ties.”

Jesse Carlstrom, a spokesman for Alaska Gasline, said in an email that the company is “paying close attention to the escalating trade dispute with China” but that it’s “confident support in the project will continue from both American and Chinese parties because Alaska LNG provides a unique win-win opportunity for both nations.”

“China is currently the third largest LNG consumer on the planet and, as a result of environmental goals the demand for LNG in China continues to grow,” Carlstrom said.

A spokesman for Air Products said it “continues to make good progress” on the project.

In West Virginia, optimism remains that Appalachia will one day rival Texas as a chemical refining hub.

“The economics of making investments in the Appalachian region is still there,” said the Chemical Alliance Zone’s DiGregorio. “Whatever is going on might slow things down a bit but wouldn’t necessarily halt them.”

“This is a marathon,” he said. “So despite blips and in the stock market and trade wars, the cheapest ethane in the world is in Appalachia.”

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