How Trump Could Burn West Virginia, Causing It To Lose An $84 Billion Gas Deal With China
West Virginia may personify the trade war with China — a state with $84 billion on the line and money that would transform the area. State officials and economic developers are working hard behind the scenes. But they are hampered by something completely out of their hands — the actions taken by Donald Trump to start levying tariffs on certain goods coming out of China.
In November 2017, China Energy Investment Corp. signed a non-binding trade agreement with the state of West Virginia that would pump billions into its economy. In return, China would get access to the plethora of shale gas that rest below the state’s land, all to feed its own chemical and manufacturing base.
Without knowing what’s actually inside the “contract” between the two entities, it is potentially a win-win deal. The “wet gas” that is separated from the “dry gas” is used as a feedstock for industry: methane, butane, ethane and propane — components of everything we touch. In fact, the abundance of shale gas has prompted industry from all over the world to locate to the United States.
“The Chinese are right at our doorsteps,” West Virginia Governor Jim Justice said at a press event. “As are the people from Qatar. As are other foreign investments coupled with U.S. investment. They are truly friends. But they are working through this tariff stuff and trade imbalance. They can’t pull the trigger until this done. It will be settled. We will not get in an all-out trade war with China.”
Some context: West Virginia’s gross economic output is about $75 billion a year and its coal business has lost ground to more competitive and cleaner electric generation fuels. Consider that the coal industry there had employed 70,000 miners in the 1970s and 13,000 miners are employed today. Right now, blue chip oil and gas companies are doing business in the state and include Chesapeake Energy, Equitable Resources, Marathon Oil, Range Resources and Williams Co. China Energy’s investment, though, would top them all.
The Marcellus Shale basin holds 141 trillion cubic feet of recoverable natural gas. The neighboring Utica Shale basin is at least as rich. That means China could choose from other states in the region, such as Pennsylvania and Ohio. West Virginia, however, has this informal agreement. But it has to gear up and make investments in community colleges, all to be ready on day-one.
“There are other states in the hunt,” West Virginia State Senator Randy Smith and Chair of the Senate Energy, Industry and Mining told this writer. “It is about who gives them the best deal: tax breaks, incentives and so forth.”
West Virginia is thus fighting a two-front a war — one of which it has the power and the other of which it does not. Or does it? In 2016, the state voted overwhelmingly for Trump. And if Governor Justice weighed in and leveraged that support, that could help settle this trade conflict. After all, the purpose of the World Trade Organization is to hear trade disputes, all to avoid disrupting global markets.
If China, for example, enters into new long-term contracts with other countries to provide everything from soybeans to natural gas, American businesses lose. And that’s why the stock market has been gyrating. China, too, could suffer if this drags on, which is why it promised last week to pare down its trade surplus to zero by 2024 by, in effect, requiring the purchase of more American goods — empty words, because the government there can’t force its consumers to buy U.S. products.
But the biggest victim here would be West Virginia. Insiders told this reporter at the state capitol that Governor Justice doesn’t expect talks to get back on track for at least a year. That’s a long time for a state that is bleeding population and where the gross domestic product fell in 2016 by 0.9%.
“My concern is to do what is best for West Virginia,” Senator Smith says. “We won’t sell our soul to get a deal. We want to protect our environment, our workforce and our state — to do what is best for the state of West Virginia. No doubt, this deal would boost the West Virginia economy. As a state, our legislators are trying to make West Virginia more business friendly.”
If this trade war doesn’t botch the whole thing, China Energy’s investment in West Virginia could trigger a gold rush there, or a natural gas liquids rush. It would be the cornerstone of attracting the multi-billion dollar cracker plants used to break out the “wet” gas from the “dry” gas. It would furthermore be used as the catalyst to attract an ethane storage and distribution hub to harness petrochemicals to serve the U.S. manufacturing base. Economic developers say that 100,000 or more jobs could be created, in a state with 800,000 positions in all.
To be sure, the doubters want to know exactly what is inside that memorandum of understanding and what may have been offered to China Energy in return for this investment. Appalachian Mountain Advocates sued to find out but the state is arguing that the information is privileged and protected by “trade secrets.”
At the same time, environmental organizations are concerned that if the region became a hub for oil and gas enterprises, it would erode air and water quality. They point to the coal industry that has withdrawn from southern West Virginia and has left the land scarred and the people desperate.
To that end, the state oversees the natural gas sector and could establish rules to ensure that much of the wealth remains at home while the drilling is done responsibly. The money could fund schools to educate workers about the oil and gas industry as well as those that teach science, engineering, technology and math. It’s about attracting more and more employers.
This investment would be an adrenalin shot. With both the United States and the world community decreasing their reliance on coal, West Virginia needs new revenues. Coal exports have fallen from 126 million tons in 2012 to 60 million tons 2016, says the U.S. Energy Information Administration.
“We are doing everything within reason to get this deal done. We can’t control what happens in other parts of the world. We are still one of the front runners for this deal. We will do what we can to get China to invest here,” says Senator Smith. “If it does, great. If it does not, we will move on.”
The big obstacle, of course, is the trade dispute with China. At a minimum, it has sidelined this deal. At a maximum, that brawl could bury it. For a state that has put its trust in Trump, it could get burned — a double whammy, given that the coal renaissance he promised has never materialized.