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China Reselling Europe Russian LNG

Oct 21, 2022

China has been purchasing Russian natural gas aggressively since the beginning of the year. The SCMP reported that Chinese customs data indicated that China bought 2.35 million tons of liquefied natural gas (LNG) during the first half of the year for about $2.16 billion, with the import volume increasing by 28%, as Russia became China’s fourth largest-supplier of LNG. Pipeline gas into China from Russia has also hit new records. 

Simultaneously, Beijing and Washington’s growing tensions surrounding Taiwan have further strengthened the ‘anti-Western’ bloc between China and Russia as well. And the U.S.’s aggressive Taiwan policy is pushing Beijing and Moscow closer together as they both work to become more resilient to the weaponization of the U.S. dollar and Washington-led sanctions. 

As a result of European and U.S. sanctions against Russian energy imports, European countries will face a harsh winter with increasing energy prices that will cause significant political issues within the member states of the European Union. The EU is increasingly in need of energy, and due to the sanctions placed on Russia, EU member states are purchasing Chinese LNG, which was also imported from Russia. 

LNG from Russia is not primarily being used for domestic demand in China, as shutdowns and economic contractions have limited the need for LNG. But as data is becoming more available, it is increasingly clear that China is reselling Russian LNG back to Europe for a significant premium. Ultimately, Europe is still buying Russian LNG, but it’s paying China a premium price for it. 

Europe’s LNG imports increased by 60% in the first six months of 2022. Many instances suggest that this reselling of Russian LNG via China to Europe has become somewhat commonplace. China’s JOVO Group, an LNG trader, disclosed that the company resold LNG cargo to European buyers. Traders in Shanghai suggested that profits on such transactions could be in the tens of millions of dollars, even up to one-hundred million dollars. 

Local media reports suggested that Sinopec alone sold 45 cargoes of LNG, or about 3.15mn tonnes. The total amount of Chinese LNG that has been resold is probably more than 4mn tonnes, equivalent to seven percent of Europe’s gas imports in the first half of the year. 

As a result of the surplus Chinese LNG, which was bought from the Russians, Europe can refill storage facilities and reserves to prepare for the hard winter. In reality, the only purpose of the sanctions are to sideline Moscow. Regardless of all of the European sanctions, Russian LNG is still making its way to Europe through Chinese trade.  

Rather than become less dependent on Russian energy imports, Europe has become more reliant on Russia, while increasing its dependence on China as a middleman. This also indicates that China knowingly assists Russia in evading sanctions, which makes sense given the increased tensions in both Taiwan and Ukraine. However, it further illustrates how quickly states can align to combat U.S. sanctions in the name of a greater financial interest or energy need. 

Recently an Ex-Aramco EVP suggested that “The U.S. doesn’t have the LNG capacity to replace Russia’s exports to Europe,” further stating that Europe does not really have an alternative to Russian energy imports. The fact that Europe is seeking Russian LNG through other vendors proves this as a reality, at least for now. The U.S. is currently unable to provide more LNG, while North Africa has its own issues with supply. Therefore, the energy crisis is really a global problem only further complicated by Russia’s war in Ukraine.

To make things more difficult for Europe, sanctions have kept the price of both Russian oil and gas supplies, including LNG, extremely elevated. 

European natural gas rates surged to new records since the war began. European gas typically trades at a discount to LNG in North Asia, home to the top importers. But Europe’s plan to sanction Russian gas means that it will need to boost LNG imports, with the continent’s prices staying elevated. In short, the sanctions imposed on Russia have only allowed Moscow to continue making money off of exports–perhaps even more money than previous years–while simultaneously strengthening its relationship with Beijing in the face of Western sanctions. 

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