SNP China Petroleum and Chemical Corp

By Brian Spegele 

BEIJING--China's beleaguered oil sector could face fresh challenges following Donald Trump's election as president, with some in the industry warning that a harder U.S. line toward China could stymie potential investment in the U.S. energy patch.

State-owned giants such as PetroChina Co. and China Petroleum & Chemical Corp. long viewed the U.S. as the golden egg of their global deal making ambitions, with its huge oil-and-gas reserves and a stable regulatory and political climate.

Now Mr. Trump's election is brewing new uncertainty in the energy patch as experts see an inherent contradiction between Mr. Trump's pledge to promote oil-and-gas drilling and his campaign rhetoric decrying globalization.

"Nobody knows what he'll do," said a person with ties to China's top oil executives who has promoted the idea of more Chinese energy investment in the U.S.

An attorney who works with Chinese energy clients and others across Asia said he began fielding questions soon after Mr. Trump was declared victor.

It has been "a constant barrage of questions about what does this really mean," said David Wochner, who leads the policy and regulatory practice at law firm K&L Gates.

On one hand, Mr. Trump and his team could likely be convinced of the value to the U.S. economy of exporting more energy, he said.

"But as you start to think about Asian investment--Chinese or otherwise--into U.S. energy infrastructure, and taking a stronger role perhaps in the U.S. energy market, and then having the ability to export the commodity to their home country, I think it becomes a bit of a guessing game at this point," he said.

As a candidate, Mr. Trump pledged to slap a 45% tariff on Chinese imports and to brand China a currency manipulator. Either one would likely trigger retaliation by China's government, and sour bilateral ties between the countries.

In many ways, the U.S. and China are natural partners when it comes to oil and gas. The U.S. has significant export ambitions--particularly of liquefied natural gas that increasingly is made from abundant shale reserves. At the same time, China is already a huge importer, and continues to grow each year.

As a result, its companies have been scoping out potential investment in everything from stakes in U.S. oil and natural gas fields to energy infrastructure such as pipelines and export terminals on the Gulf of Mexico coast. That includes big state-owned energy giants and a host of smaller companies that are eager to cement their footprints abroad, say people who advise the companies.

No doubt, getting a foot in the door in the U.S. has never been particularly easy for China's energy companies. Most notably is the failed takeover attempt of U.S. oil producer Unocal Corp. by China's state-owned Cnooc Ltd. in 2005. Cnooc's bid at the time suffered from a wave of anti-China sentiment on a wide range of issues including China's trade practices--closely mirroring what Mr. Trump says today.

Under the Obama administration, Chinese companies found greater footing. They successfully completed a number of deals, including with U.S. shale pioneer Chesapeake Energy Corp. and others.

Today Mr. Wochner advises China's energy companies to engage early with the new administration to form a better sense of how regulations may change. Political analysts say the uncertainty will spur much consternation in Beijing.

Mr. Trump's victory likely increases the "level of political risk associated with investing in the United States in the eyes of many Chinese energy executives," said Erica Downs, a China energy expert at the consultancy Eurasia Group. "This will be a disappointment because of the good investment opportunities here."

Write to Brian Spegele at brian.spegele@wsj.com

(END) Dow Jones Newswires

November 13, 2016 02:26 ET (07:26 GMT)

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