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Is China reexporting Russian gas to Europe?

, September 16, 2022, 0 Comments

As the EU attempts to unpick its reliance on Russian gas, it could become more dependent on Chinese supplies, some of which come from Russia. This might undermine the aim of reducing purchases of its fossil fuels.

china-russia-gas-marketexpress-in“The global liquefied natural gas (LNG) market is increasingly well-integrated, and regional demand shifts can help balance otherwise tight markets. This redirection of flows serves the interests of all parties involved,” Nicholas Kumleben, director of energy research at macroeconomic advisory firm Greenmantle, told DW.Ahead of the winter, Europe’s gas storage is now almost 80% full, partly thanks to LNG exports from China, The Nikkei reports. Russia has drastically reduced gas supplies to Europe since its invasion of Ukraine.

China accelerating exports of gas

Chinese LNG companies have increased supplies for overseas markets in response to rising demand.

So far this year, Chinese companies have sold 4 million tons of LNG on international markets. That represents about 7% of Europe’s gas consumption for the first half of the year. Evidence of this came from China’s JOVO Group, an LNG broker, which said it had sold an LNG cargo worth as much as $100 million (€103 million) to a European buyer.

China’s biggest oil refiner, Sinopec Group, also said it had been channeling excess LNG into the international market. Local media said Sinopec had sold 45 cargoes of LNG, or about 3.15 million tons.

“If Europe is buying LNG from China, then yes, potentially some of it may be Russian, if it’s mixed in particular,” Anna Mikulska from the Center for Energy Studies at Rice University’s Baker Institute for Public Policy told DW. “I do not believe there are any rules of content origin — in the end it is still an issue of displacement of volumes really.”

This seems like getting around sanctions on Russia, although the EU has not sanctioned Russian gas. Russia has systematically cut the supply and LNG markets are interconnected.

“There is nothing the EU can do beyond not buying from China but then exposing themselves to potentially serious gas shortages in the winter,” Mikulska added. “This way it’s China and not Russia that captures the potential additional profits from reselling this gas.”

China and Russia meet to consider wider issues, reports indicate that exports of Russian gas are finding their way into Europe – via China.

China buying Russian gas

Russia’s sales of pipeline gas to China grew by almost 65% in the first six months of the year compared with 2021. Since the Russian invasion of Ukraine, China’s spending on energy imports from Russia has jumped to $35 billion, from $20 billion a year earlier, Bloomberg reported.

Russia’s Gazprom and the China National Petroleum Corporation (CNPC) signed a $400 billion 30-year agreement in 2014 to build the Power of Siberia, a pipeline with a 3,000-kilometer (1,865-mile) section in Russia and 5,000 kilometers in China. The pipeline was launched in late 2019 and is expected to supply China with up to 38 billion cubic meters of gas a year once it reaches full capacity in 2025.

Moscow’s energy plans call for an increase in exports to China. Russia knows that it needs to diversify into new markets as the EU lowers dependence on its supplies.

“What Russia sells to China is also on a contracted price basis and, from my understanding, the deal that China and Russia made for Power of Siberia 1 was rather more advantageous toward China, also in terms of price,” Mikulska reasoned.

“The Chinese would break Gazprom’s export monopoly when reselling Russian LNG gas,” Albrecht Rothacher, an EU diplomat and East Asia specialist, said. “The Kremlin would have to be really desperate — or politically very weakened — to permit this,” he told DW.

Not enough – and too much

Experts warn that Europe cannot expect Chinese suppliers to cover its energy shortages, given that the total amount of gas that China can export to Europe is limited, compared with other sources like Russia.

Also, as economic activity revives in China, the situation will reverse, leaving Europe dependent on Beijing for its gas at higher prices.

“I am afraid that China is not really on the EU’s radar yet for potential LNG deliveries,” Rothacher said.

“There could be some surplus shipments from Yamal heading west to Europe, but they would be minor compared with what the EU needs to import from Norway, Algeria, Qatar, UAR, Turkmenistan, Azerbaijan, Oman, Israel, maybe Iran and last but not least the US to make up for Russian shortfalls, which remain unpredictable at the moment.”

Chinese-Russian cooperation

Mikulsksa for her part believes the situation exposes the issue the EU as well as the US and NATO will need to really be thinking about, namely, “that as they gravitate towards cooperation, Russia and China can work together to manipulate/influence global energy markets to a level that’s much greater than if they acted independently of each other,” Mikulska warned.

“This won’t be resolved until Europe figures out the issues of alternative supply. It won’t be easy, and it won’t happen this winter,” she said.

Mikulska adds it also will not be as easy for Russia to repeat year after year its high profits from rather low gas sales as European countries move away from Russian gas and as prices hopefully moderate.

“In addition, there is the possibility that Russia makes itself increasingly dependent on China for demand of energy. And while these countries cooperate now, it’s a complicated relationship to say the least.”