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Trump Knows Deals With China Can Reduce Trade Deficit

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President Trump arrived for the U.S.-ASEAN Summit at the Philippine International Convention Center, Monday, Nov. 13, 2017, in Manila, Philippines. The president is on a five country trip through Asia traveling to Japan, South Korea, China, Vietnam and the Philippines. (Andrew Harnik/AP)

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Monday, 13 Nov 2017 04:35 PM Current | Bio | Archive

During his trip to Asia President Trump signed a series of important trade deals.

The most important is an agreement to invest $43 billion to build the infrastructure to export liquefied natural gas (LNG) from Alaska to China. The agreement is expected to be finalized by the end of 2018.

The deal is the result of negotiations that started in May, when President Trump signed an agreement with Xi Jinping to boost LNG exports to China. One month before, in April, I gave a speech to the Beijing Energy Club. The executives of Chinese energy companies agreed that LNG imports from the U.S. will benefit China’s increasing energy demand, and reduce the U.S. trade deficit with China in the future.

The new project is being developed by Alaska LNG, which is owned by state-run Alaska Gasline Development Corporation (AGDC). Sinopec would purchase up to 20 million tons of gas per year, while the Bank of China would finance the project. AGDC would retain a majority stake.

The North Slope of Alaska, located on the Artic side, has proven gas reserves of over 35 trillion cubic feet, which would be able to cover part of China’s growing energy demand.

In order to carry natural gas to the Pacific coast of Alaska, AGDC will need to build an 800-mile-long pipeline and a liquefaction plant in the Kenai Peninsula to liquefy the gas and ship it to China.

The U.S.-China deal has important geopolitical implications. In fact, it signals China’s political shift toward the U.S. and away from Russia, which had planned to cover China’s energy demand by supplying natural gas from Siberia.

The price of U.S. LNG is more competitive than Siberian pipeline gas, but China’s choice to import it from Alaska rather than Texas involves some risks. The project presents technical difficulties and a high financial burden that induced BP, ConocoPhillips, and ExxonMobil to step away.

It is projected to be completed by 2025. It is a long-term investment subject to the risk that natural gas might not be the most competitive source of energy by the time it will be in operation — in eight years or more.

China’s strategy is to bypass the Panama Canal and import LNG from the State of Alaska because it is closer to Asia than Texas. This way, the shipping cost will be lower than importing it from the Gulf of Mexico, but the investment will be much higher and it will take several years to build a pipeline across Alaska. In contrast, most pipelines in Texas are already built and several LNG plants are ready to export.

Since China joined the World Trade Organization (WTO) in December of 2001, the U.S. bilateral trade deficit has increased every year (except in 2009 and 2016). Last year it reached $347 billion.

If the LNG deal with China is implemented, it will reduce the U.S. trade deficit, create new jobs, and generate revenue. Last week's meeting in Beijing reaffirmed Xi Jinping’s commitment to free trade and Trump’s pledge to advance American interests.

Francesco Stipo is the President of the Houston Energy Club, a member of the National Press Club in Washington D.C., a Fellow of the World Academy of Art and Science, and recently joined the Bretton Woods Committee. Born in Italy in 1973, Dr. Stipo is a naturalized United States citizen. He holds a Ph.D. in International Law and a Master Degree in Comparative Law from the University of Miami. To read more of his reports, Click Here Now.

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If the LNG deal with China is implemented, it will reduce the U.S. trade deficit, create new jobs, and generate revenue.
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2017-35-13
Monday, 13 Nov 2017 04:35 PM
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