In the context of the Paris accords and the ostracizing of Qatar, was LNG included in the China trade deal as part of a larger Middle East strategy?

Just weeks after being applauded for negotiating the history making trade deal with Chinese president Xi Jinping, President Trump undid any goodwill he had garnered by announcing the withdrawal of the US from the Paris climate accords. Since then, voices in the media have been hotly debating the pros and cons—mostly cons—of the US withdrawing from the deal. The media, and people in general, often become so focused on a single issue or, in this case, a single debate, that they miss other, significant, events taking place off stage. Not wanting to add to the debate of whether the US should have withdrawn from the Paris climate accords, this article will go backstage and examine an unusual connection between the China trade deal and the Paris accord, which has tremendous implications for liquid natural gas (LNG), cooked poultry, and Qatar.

Thanks to the China trade deal, the US will now be able to sell liquid natural gas (LNG) to China. For those unfamiliar with the significance of this LNG arrangement, Forbes Magazine gave this excellent explanation: “LNG is the fastest growing major energy market, the U.S. is the fastest growing exporter, and China is the largest incremental consumer (with nearly a $30 billion market by 2030).”[1]

To remain in liquid state, LNG has to be stored at -260°F (-160°C)[2]. This means that exporting LNG requires specialized merchant ships, manned by certified crews who earn more than other merchant seaman. Merchant seaman is on the list of jobs, such as coal miner and truck driver, which used to be a way of earning a good living without a university degree. Today, however, these three job sectors are in decline. In the 1990s, the US merchant fleet, including LNG and oil tankers, had over 600 ships. Today, the US fleet is down to 169. Therefore, this LNG deal could be good news for the US merchant service. And obviously more ships mean more jobs. However, the necessity to save the US merchant fleet goes far beyond simple economics.

Unlike coal mining, the merchant fleet needs to be saved because, in time of war, the fleet can serve as a lifeline to the outside world, ensuring necessary shipments of food, fuel, or raw materials to the US or to troops overseas. Even with modern technology, it takes years to build and crew a ship, therefore coastal nations should maintain a large, standing merchant fleet, even during peace time. The issue, though, is that the merchant fleet is private, paid for by the corporations whose products they transport. As shipping decreases, the need for ships and men decreases, and the fleet dissipates. A rebirth in US LNG exports, while probably just a rounding error as an increase in GDP or overall employment, could mean a rebirth of the US merchant fleet.

So, how does LNG relate to Paris? LNG is considered a clean burning fuel and will be eligible for sale to the roughly 197 countries who signed the Paris agreement. By increasing their use of LNG they can decrease their greenhouse gas emissions. China, in an effort to reduce its infamous air pollution, has already begun increasing its use of LNG, with LNG imports increasing 33% in 2016.[3]

And how does LNG relate to Qatar? Qatar is the world’s largest exporter of LNG[4] and China’s first or second largest supplier. In May, it was thought that, with the new US-China trade deal, China may shift enough of their LNG business to the US to damage Qatar’s economy. As of June, however, Qatar’s situation seems to have become even more perilous. A number of Middle Eastern countries, including Saudi Arabia, Egypt, UAE, Bahrain, Yemen and the Maldives have announced that they are cutting ties with Qatar on charges that Qatar supports terrorism. The question now is which side China will choose. Saudi Arabia is one of China’s most important energy suppliers, as well as a major trade partner and strategic ally in the Gulf Region.[5] Continuing to purchase LNG from Qatar could hurt China’s relationship with the Saudis. If China chooses US LNG over Qatar, this could be great news for the US. Even if China does not chose one over the other, China’s use of LNG was already planned to increase. The Paris accord will simply accelerate that increase.

As important as LNG has proven to be, it was an aside to the major subjects of the deal which were US beef and US financial services. At present, China is the world’s number two beef importer.[6] According to the US Department of Agriculture, beef demand in China is expected to rise.[7] Additionally, China, home to both the world’s largest population and largest banks, has tremendous potential for the more developed US financial services sector. Therefore, it makes sense that President Trump and US trade representatives were fighting to open those markets to US companies. When the China deal was announced, LNG seemed such a random commodity that it looked out of place in the mix. The deal also allows China to export cooked poultry to the US, which seems equally unusual. Now, however, in the context of the Paris accords and the Middle Eastern countries ostracizing Qatar, one has to ask, was LNG included in the China deal as part of a larger Middle East strategy? And, as for the chickens, were they a throw away; something unimportant tossed into the deal as a sweetener for China?

Many in the US are upset about the chicken deal because Chinese processed food has a terrible reputation for being unsafe. Over the past decade there have been cases of poisoned baby milk, recovered gutter oil sold as cooking oil, rat meat sold as lamb, expired beef with changed dates, and on and on.[8] Consequently, it is unlikely that US consumers will buy a lot of the Chinese chickens, or that they will cut into the bottom lines of US farmers. But China will definitely buy US LNG and in increasing quantities. As a trade strategy, the US has gained permission to sell an extremely profitable commodity in return for ceding permission to sell a product no one wants.

Is it good that the US withdrew from the Paris accords? This author will let others debate that point. Just like in a magic show, sometimes, the whole audience is looking left, when they should be looking right. When a deal looks good or bad at a glance, you have to dig deeper, and ask more questions. Deals do not happen in isolation. Some depict the global economy as an eco-system, where, if you increase one animal or plant you could risk throwing the whole system out of balance, killing everything. But this is a simplification. The modern global economy is even more complex and interconnected than that. Today, the global economy is like a huge game of pick up sticks or Jenga. Pull the wrong block and you may cause the whole tower to collapse. Paris accord – LNG – Chickens – Qatar… Who honestly saw that coming?

References

[1] Jude Clemente, U.S. Liquefied Natural Gas To China Is A Game-Changer, Forbes, May 25, 2017, https://www.forbes.com/sites/judeclemente/2017/05/25/u-s-liquefied-natural-gas-to-china-is-a-game-changer/#2f9265ab671a

[2] CH-IV, LNG Information, http://www.ch-iv.com/lng-information

[3] LNG World News, China’s 2016 LNG imports rise 33 pct YoY, http://www.lngworldnews.com/chinas-2016-lng-imports-rise-33-pct-yoy/

[4] Statista, Major liquefied natural gas exporting countries in 2015 (in billion cubic meters), https://www.statista.com/statistics/274528/major-exporting-countries-of-lng/

[5] Kristin Huang, Which side will China pick in Gulf row? Qatar matters, but so does Saudi Arabia, South China Morning Post, June 7, 2017, http://www.scmp.com/news/china/diplomacy-defence/article/2097231/which-side-will-china-pick-qatar-matters-so-does-saudi

[6] Beef 2 Live, World Beef Imports: Ranking Of Countries, Jun 3, 2017, http://beef2live.com/story-world-beef-imports-ranking-countries-0-106900

[7] United States Department of Aggriculture, Live Stock and Poultry World Trade Markets, April 2017

[8] Chinese Chicken Is Headed To America, But It’s Really All About The Beef, NPR, May 12, 2017, http://www.npr.org/sections/thesalt/2017/05/12/528139468/chinese-chicken-is-headed-to-america-but-its-really-all-about-beef