China’s newest restrictions on rare-earth materials would mark a nearly unprecedented export control that stands to disrupt the global economy, giving Beijing more leverage in trade negotiations and ratcheting up pressure on the Trump administration to respond.
The rule, put out Thursday by China’s Commerce Ministry, is viewed as an escalation in the U.S.-China trade fight because it threatens the supply chain for semiconductors. Chips are the lifeblood of the economy, powering phones, computers and data centers needed to train artificial-intelligence models. The rule also would affect cars, solar panels and the equipment for making chips and other products, limiting the ability of other countries to support their own industries. China produces roughly 90% of the world’s rare-earth materials.
President Trump’s trade deal with South Korea is on shaky ground, with Commerce Secretary Howard Lutnick taking a tough line in talks as some Seoul officials privately argue to allies that the White House is moving the goal posts.
Lutnick, in recent conversations with South Korean officials, has discussed with Seoul the idea of slightly increasing the $350 billion they had previously guaranteed to the U.S. in July and suggested the final tally could get a bit closer to the $550 billion pledged by Japan, according to people familiar with the discussions, including an adviser to South Korea’s government.
The Biden administration’s announcement Friday that it’s pausing liquefied natural gas export approvals sparked political backlash, drew cheers from climate activists and stoked uncertainty in energy markets, but is unlikely to see the U.S. give up its title as the world’s top LNG exporter.
The U.S. will delay its decisions on new LNG exports to non-free trade agreement countries, allowing time for the Energy Department to update the underlying analyses for LNG export authorizations, the White House said.
Those analyses are roughly five years old and “no longer adequately account for considerations” such as potential cost increases for American consumers and manufacturers or the “latest assessment of the impact of greenhouse gas emissions,” it said.
The Biden administration likely “realizes the role of LNG in foreign policy, but at the same time it needs to show the Democrat base that it is doing something for climate change,” said Anas Alhajji, an independent energy expert and managing partner at Energy Outlook Advisors, pointing out that the announcement comes during a presidential election year.
“Delaying one project or stopping it may not be a big deal, but it is a problem if it becomes a trend,” he said in emailed commentary.
Environmental groups, which have pushed for action, cheered the decision.
The 12 impacted projects in the U.S. “would spew out as much climate-warming pollution as 223 coal plants per year, and they present explosion risks to the communities where they’re located and emit other health-harming chemicals,” the Sierra Club, an environmental group, said in a statement welcoming the decision.
Top exporter
The announcement is particularly important for a nation that became the world’s biggest LNG exporter in the span of less than a decade.
The U.S. became the world’s largest LNG exporter during the first half of 2022 on the back of increases in LNG export capacity, international natural gas and LNG prices, and global demand, particularly in Europe, according to the Energy Information Administration.
The country’s exports of LNG climbed to a fresh record in November 2023, with the EIA reporting domestic exports of 386.2 billion cubic feet, up from 384.4 bcf a month earlier. Exports in December 2016 were at just 41.8 bcf.
U.S. LNG exports soared after 2016.
EIA
With 90% of U.S. LNG going to non-free trade agreement destinations, withholding licensing effectively “halts project development,” John Miller, managing director, ESG and sustainability policy at TD Cowen wrote in a Friday note.
Equities
LNG equities with operating facilities likely won’t benefit from the administration’s announcement, at least not immediately, until the impacts of this pause in export approvals to non-FTA countries becomes more clear, Jason Gabelman, director, sustainability & energy transition at TD Cowen said.
U.S. companies with government approvals that have not been sanctioned, “could have a higher probability of moving forward this year, albeit modestly” as offtakers may be hesitant to sign up to new U.S. projects with LNG development getting “politicized,” he said. Among those, he pointed out approvals for proposed liquefaction units at NextDecade Corp.’s NEXT, +2.30%
Rio Grande LNG export facility project in Brownsville, Texas.
At the same time, it would not be a surprise if U.S. LNG companies pursuing growth that do not yet have non-FTA approval see downside pressure, said Gabelman.
LNG projects take around 4 years to build and any delays to project sanctions today will take “multiple years to manifest in the market,” he said.
Still, the U.S. announcement “introduces the risk of more stringent oversight that could limit new U.S. capacity” more than four years out, Gabelman said.
Companies that supply equipment to LNG liquefaction projects include Baker Hughes Co. BKR, +0.59%
and Chart Industries Inc. GTLS, -7.54%,
said Marc Bianchi, a senior energy analyst at TD Cowen.
Any slowing of approval would create “overhand on order growth,” he said.
Climate change
The White House said Friday that its decision will not impact the ability of the U.S. to continue supplying LNG to its allies in the near term but also acknowledged environmental concerns.
“I think we’ve got to be clear eyed about the challenges that we face. The climate crisis is an existential crisis, and we’ve got to be, I think, really forward leaning into making sure that we’re taking that head on,” said Ali Zaidi, the White House national climate adviser, told reporters Friday.
He added that given the number of approvals already completed, the number of projects under construction are set to double existing capacity with approvals beyond that set to double capacity yet again.
“So there’s a long runway here, and we’re taking a step back and thinking, OK, let’s take a hard look before that runway continues to build out,” he said.
Rob Thummel, senior portfolio manager at Tortoise, argued that U.S. LNG exports actually reduce global carbon emissions as natural gas typically “displaces coal to generate electricity in countries such as China and India.”
They also improve global energy security as U.S. natural gas is becoming Europe’s primary energy supplier, replacing Russia, he said.
In a statement Friday, Sen. Joe Manchin, a West Virginia Democrat and chairman of the U.S. Senate Energy and Natural Resources Committee, said that if the Biden administration has facts to prove that additional LNG export capacity would hurt Americans, it needs to make that information public. But if the pause is “another political ploy to pander to keep-it-in-the-ground climate activists,” he said he would “do everything in my power to end this pause immediately.
Manchin plans to hold a hearing on the decision in the coming weeks.
Market impact
The U.S. decision to delay new LNG export permits is unlikely to have an impact on domestic natural-gas supplies or prices, said Energy Outlook Advisors’ Alhajji.
LNG prices and the rate at which new LNG export terminals can be constructed help determine LNG export volumes, the EIA said, and higher LNG exports can result in upward pressure on U.S. natural-gas prices, while lower U.S. LNG exports can pressure prices.
On Friday, natural gas for February delivery NG00, +0.23%
NGG24, +0.26%
settled at $2.71 per million British thermal units, up 7.7% for the week.
Meanwhile, the U.S. is likely to keep its position as the world’s top LNG exporter, according to Tortoise’s Thummel.
The U.S. is the currently the largest LNG exporter at almost 12 bcf per day, with Qatar coming in second, he said.
Qatar is expanding its LNG export capacity and is expected to have the ability to export almost 20 bcf per day by 2028, he said. The EIA reported recently that Qatar has averaged 10.3 bcf per day in exports during the last 10 years.
That would mark sizable growth. But the EIA reported in November that LNG export capacity from North America is likely to more than double from around 11.4 bcf per day to 24.3 bcf per day by the end of 2027.
The EIA said North America’s LNG export capacity is likely to more than double by 2027.
EIA
Given expected growth in U.S. LNG export capacity, the U.S. is likely to “remain the largest exporter of LNG in the world” despite the U.S. announcement, said Thummel.
A deepening confrontation between the U.S. and China is eroding trade ties between the world’s two largest economies, with goods from China accounting for the smallest percentage of U.S. imports in 20 years.
European Union countries are meant to have placed an array of sanctions on Russia, preventing exports of a host of goods and services, ranging from high-end machinery to luxury cars, to the country in the wake of its unprovoked 2022 invasion of neighboring Ukraine.
And official data do show that EU exports to Russia have slumped, by 31% during the first five months of the year.
But, curiously, exports from EU countries to Russia’s neighbors have surged.
Take Germany, for instance, whose exports to Kazakhstan are up 105% on a year-over-year basis. German exports to Central Asia and Belarus are up 75%.
IIF
“Not all of this stuff is going to Russia. But a lot of it probably is,” tweeted Robin Brooks, chief economist at the Institute of International Finance, who produced the chart.
And it’s not just Germany. Sweden also has seen a surge of exports to Kazakhstan.
Meanwhile, Germany, Poland, the Czech Republic and Hungary have boosted exports to Kyrgyzstan.
Germany’s trade surplus fell unexpectedly on month in May, as exports declined marginally and imports rose, a sign that domestic demand could be improving despite a global economic slowdown, as the country’s economy tries to shake off the recession it suffered in the winter.
The country’s adjusted trade surplus–the balance of exports and imports of goods–dipped to 14.4 billion euros ($15.72 billion) in May, compared with a revised EUR16.5 billion in April, data from the country’s statistics office Destatis showed Tuesday.
In May, exports ticked down 0.1% on month on a calendar and seasonally adjusted basis to EUR130.5 billion, suggesting global demand for German manufacturing goods receded somewhat.
Economists polled by The Wall Street Journal expected the trade balance at EUR17.6 billion and exports to rise by 0.5%.
However, imports increased 1.7% to EUR116.1 billion, a sign that domestic demand could be growing. Domestic consumption slumped in Germany over the winter as the economy suffered a recession, contracting by 0.5% in the fourth quarter of 2022 and 0.3% in the first of this year.
Outside the European Union, the country receiving the most German exports in May was the U.S., though exports there declined by 3.6% on month, Destatis said. Exports to China increased 1.6%, while they rose by 5.8% to the U.K., it added.
More than 1 million barrels a day of Russian oil exports are set to be upended by Western sanctions expected to come into force within weeks, shipments Moscow will struggle to redirect elsewhere which threatens to further tighten global energy markets, the International Energy Agency said Tuesday.
Russian crude oil exports, including to the European Union, were largely unchanged last month, despite the prospect of an imminent EU ban on Russian crude oil imports and a separate plan to cap prices for Russian crude oil sales, the Paris-based agency said in a monthly report.
Russian exports to the EU were 1.5 million barrels a day in October, of which 1.1 million barrels a day will be halted when the bloc’s ban comes into effect on December 5, the IEA said.
It was unclear how much of those supplies Russia would be able to redirect to customers elsewhere in the world, the IEA said. India, China and Turkey have snapped up discounted Russian crude shipments, but buying from those nations has stabilized in recent months, the IEA said. Meanwhile, the volume would be too large for the remaining nations to absorb, the agency said.
The warning comes as the IEA predicted additional demand this year and next would come from China as the nation slowly eases its Covid-19 lockdown measures–though global demand growth will be sluggish as economies are expected to struggle.
The agency upped its 2022 global oil demand forecasts by 170,000 barrels a day to 99.8 million barrels a day. For 2023, the IEA raised its oil demand forecasts by 130,000 barrels a day to 101.4 million barrels a day.
Russia’s declining oil output will drag on global supplies which will grow at an anemic rate next year, failing to keep pace with growing oil demand. The IEA said global oil supplies would rise to 100.7 million barrels a day in 2023, 100,000 barrels a day more than it was forecasting last month, but still 700,000 barrels a day short of the world’s expected appetite for oil CL.1, -0.85%
