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Aside from who will be the next US president following the November 2020
election, the issue of declining trade balance and increasing exports of American
products to China holds top priority of Washington’s economic policy, and overall,
China will be Washington’s top foreign policy priority. Washington’s policy toward
China under the new president will show whether energy exports can increase trade
between the two countries. Given the influence and presence of Saudi Arabia and
Russia in the Chinese energy market, it is not clear how the United States will be
able to gain a larger share of the Chinese energy market. It should not be overlooked that the low prices of energy products and the increase in the number of
producers have weighed heavily in favor of buyers. Lower gas prices are certainly
good news for European consumers, and they can increase their total gas consumption. This region of the world needs more natural gas supply as it gradually moves
toward replacing coal with clean energy sources (www.reuters.com 2020a, b, c, d,
e, f, g, h, i).
The past year has been a tough time both at home and abroad for US shale gas
producers. US gas production hit record levels in 2019, as did consumption. This
hid the fact that the industry was succumbing to years of low-level returns and insufficient investment to expand exploration and drilling projects. At the same time,
projects focused on LNG exports met with obstacles due to a flood of resources in
the global markets. The Covid-19 pandemic further inflamed these problems as it
led to both an international and domestic downturn in the demand for natural gas.
The pandemic also saw oil prices collapse which again levied a blow to the
US. While price signals from the markets prompted American shale production to
decrease, what the industry terms associated gas, this is the supply of residual gas
found in oil reservoirs, also reduced. The tightening of the domestic gas supply, as
well as relatively higher demand, led to a recent increase in Henry Hub prices, a key
US indicator of the natural gas market. After reaching a low of around $1.50 per
million British thermal units in June 2020, these prices recovered to around $2.30,
putting them at about the level they were in August 2019 (www.worldpoliticsreview.com 2020).
US export prices can be unstable, but these processes do follow the laws of supply and demand, thereby offering a level of predictability that facilitates many countries’ energy security goals. American LNG exporters tend to give flexibility in their
contracts meaning more provisions for short-notice cancelations. This has forded
other producers to offer similar flexibility in their contracts if they wish to compete
in the industry. LNG importers would be wise to remember that this flexibility is
only given to them through the privilege given to them by the US exporters. US
natural gas and LNG export companies are likely to suffer more than those abroad
as they are run as private companies rather than state-owned facilities. State-owned
agencies have the benefit of protection from the short-term effects of market downturn thanks to governments that can rely on natural resource exports for revenue.
Although this is a negative factor, the market-based nature of the US shale gas
industry has allowed it to remain flexible and alter itself to survive in the industry.
The next 20 years are expected to being increased gas demand in the emerging markets. How far this expansion goes is dependent on the desire of developing nations
US–China Trade Deal
Aside from who will be the next US president following the November 2020
election, the issue of declining trade balance and increasing exports of American
products to China holds top priority of Washington’s economic policy, and overall,
China will be Washington’s top foreign policy priority. Washington’s policy toward
China under the new president will show whether energy exports can increase trade
between the two countries. Given the influence and presence of Saudi Arabia and
Russia in the Chinese energy market, it is not clear how the United States will be
able to gain a larger share of the Chinese energy market. It should not be overlooked that the low prices of energy products and the increase in the number of
producers have weighed heavily in favor of buyers. Lower gas prices are certainly
good news for European consumers, and they can increase their total gas consumption. This region of the world needs more natural gas supply as it gradually moves
toward replacing coal with clean energy sources (www.reuters.com 2020a, b, c, d,
e, f, g, h, i).
The past year has been a tough time both at home and abroad for US shale gas
producers. US gas production hit record levels in 2019, as did consumption. This
hid the fact that the industry was succumbing to years of low-level returns and insufficient investment to expand exploration and drilling projects. At the same time,
projects focused on LNG exports met with obstacles due to a flood of resources in
the global markets. The Covid-19 pandemic further inflamed these problems as it
led to both an international and domestic downturn in the demand for natural gas.
The pandemic also saw oil prices collapse which again levied a blow to the
US. While price signals from the markets prompted American shale production to
decrease, what the industry terms associated gas, this is the supply of residual gas
found in oil reservoirs, also reduced. The tightening of the domestic gas supply, as
well as relatively higher demand, led to a recent increase in Henry Hub prices, a key
US indicator of the natural gas market. After reaching a low of around $1.50 per
million British thermal units in June 2020, these prices recovered to around $2.30,
putting them at about the level they were in August 2019 (www.worldpoliticsreview.com 2020).
US export prices can be unstable, but these processes do follow the laws of supply and demand, thereby offering a level of predictability that facilitates many countries’ energy security goals. American LNG exporters tend to give flexibility in their
contracts meaning more provisions for short-notice cancelations. This has forded
other producers to offer similar flexibility in their contracts if they wish to compete
in the industry. LNG importers would be wise to remember that this flexibility is
only given to them through the privilege given to them by the US exporters. US
natural gas and LNG export companies are likely to suffer more than those abroad
as they are run as private companies rather than state-owned facilities. State-owned
agencies have the benefit of protection from the short-term effects of market downturn thanks to governments that can rely on natural resource exports for revenue.
Although this is a negative factor, the market-based nature of the US shale gas
industry has allowed it to remain flexible and alter itself to survive in the industry.
The next 20 years are expected to being increased gas demand in the emerging markets. How far this expansion goes is dependent on the desire of developing nations
US–China Trade Deal