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LNG, Natural Gas, Maritime & Shipping, Crude Oil, Refined Products, Chemicals, Wet Freight
January 07, 2025
HIGHLIGHTS
US DOD says companies associated with China’s military
Markets still assessing impact on trade flows, shipping
CNOOC’s international oil trading arm deals in crude, refined products
The US Department of Defense added China's state shipping company China COSCO Shipping Corp. Ltd. and China National Offshore Oil Corp.'s international oil trading arm to a list of companies allegedly supporting the Chinese military, according to a notice filed with the Federal Register Jan. 7.
The Deputy Secretary of Defense determined that the entities listed in the notice qualify as "Chinese military companies," the document said, which provide commercial services or goods to support the People's Liberation Army or related organizations.
The list also comprises Chinese companies in the energy transition space, including battery manufacturer Contemporary Amperex Technology Co. Ltd. and technology company Tencent Holdings Ltd.
Market participants said the move signals an escalation in US-China tensions although the immediate impact on petroleum trading and shipping is unclear and traders were still assessing the situation ahead of the new US administration under Donald Trump.
A blacklist is different from the Specially Designated Nationals list compiled by the US Department of the Treasury's Office of Foreign Assets Control that previously impacted oil and gas/LNG trade flows or shipping companies by penalizing violation of sanctions on Iran or Russia.
However, a DOD blacklist targets companies that impact national security and is likely to disrupt business similar to how Chinese technology company Huawei was impacted, market participants said. It could also result in higher operational costs, compliance issues and reputational damage.
CNOOC and COSCO did not immediately respond to requests for comments. A source at CNOOC's Beijing office who declined to be named said the national oil company does not expect any immediate impact.
The document lists state-owned CNOOC and its subsidiaries CNOOC China Ltd. and CNOOC International Trading Co. Ltd., and COSCO and its subsidiaries COSCO SHIPPING (North America) Inc. and COSCO SHIPPING Finance Co. Ltd.
CNOOC International Trading is based in Hainan. Various US departments have previously listed the parent company CNOOC as an entity supporting China's military but the oil trading arm has not been directly targeted before.
CNOOC International Trading, including its operations in Singapore's commodity trading hub, is among the largest traders of crude oil, refined products and petrochemicals. A separate trading entity under CNOOC Gas and Power handles LNG trading.
CNOOC is one of China's three largest NOCs and the country's largest offshore oil and gas field producer and operator focused on upstream oil and gas production.
The NOC is also China's biggest LNG importer, having brought in approximately 50% of the country's total LNG imports since its first import. It currently operates six LNG terminals along China's coastal areas, with a total receiving and processing capacity of 32 million mt/year.
CNOOC holds two term contracts with US LNG exporter Venture Global. One is a three-year 500,000 mt/year FOB contract for supplying from the Calcasieu Pass LNG project, while the other is a 20-year 2 million mt/year FOB contract for supplying from the Plaquemines LNG project.
COSCO is one of the world's largest shipping companies and operates a large fleet of oil and gas/LNG tankers.
As of Dec. 31, 2023, COSCO's fleet comprised 1,417 ships with a total capacity of 116 million deadweight tons, including 229 ships in its tanker fleet, according to the company website.
It has 85 LNG ships with a total transportation capacity of 14.7 million cubic meters as of the end of June 2024, of which 45 LNG ships are in operation and 40 are still under construction, according to data from the company's midyear report posted Aug. 30.
There could be a slight knee-jerk reaction causing a rise in VLCC rates, market participants in the oil tanker space said, but most don't expect a huge impact for now amid low trading volumes.
"Jan. 20 is a date to note to see if all these knots tied by Biden team will be untied," a Singapore-based chartering executive said.
"It could be much different from the OFAC list. I think we should treat it as a potential issue," a shipowner said.
Since this is not the OFAC list, it could mostly mean that US companies would not be able to use COSCO's ships, a broker added.
COSCO Shipping also operates LNG carriers that will serve PetroChina, Sinopec, ENN and Qatar Energy LNG contracts.
The company has a 12 LNG carrier construction program to service its FOB contracts in 2024, with Hudong-Zhonghua Shipbuilding (Group) Co. Ltd., a subsidiary of China State Shipbuilding Corp., to be operated under a long-term charter between CNOOC and a joint venture of CNOOC, COSCO Shipping LNG and Japanese shipping company Mitsui OSK Lines (MOL).
Other energy and shipping companies blacklisted are China General Nuclear Power Corp. (CGN), China National Chemical Corp. Ltd. (ChemChina), China National Nuclear Corp. (CNNC), China State Shipbuilding Corp. Ltd. (CSSC), CSSC Offshore & Marine Engineering (Group) Co. Ltd. (COMEC) and Sinotrans & CSC Holdings Co. Ltd.