During a five-country tour in Asia, President Donald Trump announced $250 billion worth of business deals with China, including the first-ever, long-term binding gas contract between the two countries.
U.S.-based energy company American Ethane signed a $26 billion deal with one of China’s largest enterprise companies, the Nanshan Group, to export ethane, a liquefiable gas, from the Texas gulf coast. The contract duration is 20 years.
In the U.S., the project is expected to create 2,000 construction jobs and 200 permanent jobs. American Ethane will also invest more than $6 billion into new infrastructure.
Ethane is transformed via a “cracker” into ethylene, which, according to American Ethane CEO John Houghtaling, is the most efficient, environmentally friendly way to make plastic. The U.S has more ethane than any other country in the world, which keeps prices low, and American Ethane was founded on the idea that the U.S. could also use the gas for power generation.
“One of the interesting things is that President Xi Jinping and the Chinese Commerce Department, I was told by the U.S. Commerce Department, out of the 40 deals that were signed … the Chinese put our deal as number one, as far as priority,” Houghtaling told FOX Business.
While most of the deals announced in Beijing weren’t actually binding, and instead were memorandums of understanding (MOUs), American Ethane was one of the few companies that signed a concrete agreement with China during Trump’s visit.
As China seeks to reduce its domestic pollution levels, closing coal plants across the country, it will invest in a cracker that can convert the ethane imported from the U.S. into ethylene, in order to manufacture plastics. Houghtaling said China has the biggest gas deficit of any other country on the planet and therefore represents a huge market opportunity for his company.
As reported by FOX Business, trade was one of two main issues President Trump was expected to address during his trip to Asia. The non-binding nature of most of the agreements is a symptom of the issues that remain between the two economic superpowers, despite the American Ethane executive's acknowledgement that “there is a tremendous amount of economic benefit of doing deals with China.” Houghtaling said companies experience a lot of “hurdles” when it comes to binding deals with Beijing, and often have reservations about China’s credit, among other things, which could include transparency and adherence to trade laws. His company, however, was able to consider all of the risks and work out terms where it felt secure enough to commit to a 20-year contract.
“They are putting up security, so that if something were to happen, even with China changing its laws or if they walk away from the contract, we have enough security, we believe, to move forward,” Houghtaling said, adding that China’s willingness to put up a “significant” amount of security was indicative of how much they want the product.
The other main issue Trump traveled across the world to address was North Korea. At a time when the U.S. and its allies are faced with increasing nuclear threats from an aggressive North Korean regime, Houghtaling said the business leaders involved recognized the critical link between economic and national security.
“The best thing that we can do, not just for our business, but for the world in general, is to tie trade to China. … The more that we can link our prosperity the safer we are. … This is national security stuff,” he said. “I think the gravity of what we were doing in big picture stuff is not lost on any of us.”