Europe without gas? China partially resells Russian LNG to it

Europe without gas? China partially resells Russian LNG to it
Europe without gas? China partially resells Russian LNG to it

The closer the heating season gets, the more the European Union is panicking over fears of a lack of natural gas supplies from Russia. At the same time, from the beginning of Russian aggression in Ukraine, it was clear that the Kremlin would adjust the supply of energy raw materials, on which the EU was dependent for 40 percent before the war, according to how it suits the “master” of the Kremlin, Vladimir Putin.

Now, supplies through the main gas pipeline to Germany – Nord Stream 1 – have been stopped, with the demand for the lifting of economic sanctions. But Brussels rejects this.

New capacities for LNG

EU countries are trying to get rid of their dependence on Russian gas flowing through pipelines to Europe by building new capacities for LNG liquefied gas.

Mainly floating terminals are being built, up to 25 new projects are being built, the American rating and analysis service S&P Global wrote in August. Only Germany, which still has no capacity, is building five such terminals.

At the beginning of September, a terminal opened in the port of Eemshaven in the Netherlands. A third of its capacity will also be used by the Czechia through the semi-state company ČEZ. The Czech government is also interested in using terminals in Germany and Poland.

Russian gas with a detour through China

However, a paradoxical situation may arise, where gas from Russia does not flow to Europe via the traditional route, but reaches the European continent from China.

What is LNG?
Liquefied natural gas (English Liquefied Natural Gas, abbreviation LNG) is natural gas in liquefied form, which has a temperature of minus 162 °C at atmospheric pressure. The gas is liquefied after extraction so that it can be transported more easily to the market using tankers or tanker vehicles thanks to its volume of up to 600 times smaller.
Transporting and storing LNG is more advantageous than CNG (compressed natural gas), but it is more technologically demanding. The world’s largest exporter of liquefied natural gas in 2021 was Australia, which exported 78 million tons of LNG. It was followed by Qatar (77 million tons), the United States (45 million tons) and Russia (30 million tons).

“The global liquefied natural gas (LNG) market is increasingly integrated and regional shifts in demand can help balance otherwise tight markets. This redirection of flows serves the interests of all parties involved,” Nicholas Kumleben, director of energy research at the macroeconomic consultancy Greenmantle, told Germany’s Deutsche Welle somewhat cryptically.

In other words, this means that China can become an intermediary to get Russian gas to Europe.

“If Europe is buying LNG from China, then yes, potentially some of it could be Russian gas,” Anna Mikulská from the Center for Energy Studies at the Baker Institute for Public Policy at Rice University in Texas confirmed to Deutsche Welle.

Of course, this Chinese-Russian gas flows into Europe in a much smaller volume than would be possible through existing gas pipelines. Now European gas reservoirs are 86 percent full, and this is partly due to the fact that LNG is also imported from China, reported the Japanese economic daily The Nikkei.

Chinese trafficker

The largest oil and gas processor Sinopec Group has joined the LNG business. This concern takes advantage of the fact that it has surpluses (caused by the economic slowdown of the Chinese economy) and then sells them to interested parties, including European ones.

A subsidiary listed in Hong Kong confirmed that it resells part of its stock on the international market. “These are purely market transactions, we trade LNG on a global scale based on the principles of commercialization and diversification,” said a Sinopec representative. According to him, these deals have no political or geopolitical background.

At the same time, China imports two fifths of its gas consumption. In the case of liquefied gas, tankers from Australia and the United States account for half of the deliveries.

High gas prices in Europe lead to the fact that even Chinese companies want to make a living from LNG supplies. At the same time, since the beginning of the invasion, Beijing claims that it will not join the Western sanctions on Russia and, on the contrary, increases the import of oil and gas from Russia, which it buys at a discount.


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Beijing doesn’t want to completely upset the West

On the other hand, Chinese business does not want to completely upset the West, because it imports a large part of top IT technologies, including chips used in the automotive sector, from Western countries or their allies (Taiwan, Korea, Japan). This is also why Sinopec suspended investment projects with Russia in the petrochemical industry.

Statistics confirm that Chinese companies have increased LNG supplies to Europe as demand for the liquefied gas grows in the EU. They have already sold four million tons of LNG on international markets this year, which corresponds to seven percent of European gas consumption in the first half of the year.

“I don’t believe that there are any rules on the origin of the content – in the end it’s still a matter of moving volumes,” added Mikulská, adding that it is difficult to determine from which sources the liquefied gas comes.

According to her, however, it can also be interpreted as circumventing sanctions, even though Brussels has still not imposed a boycott on Russian gas. However, Beijing currently earns the most in the entire business, she added.

The flow of Russian pipeline gas to China increased by 65 percent year-on-year in the first six months. Beijing has paid $35 billion for energy imports from Putin’s Russia since the invasion, up from $20 billion in the same period in 2021, according to Bloomberg.

New gas pipeline from Russia to China

In addition, the gas interconnection of the two great powers is expanding. China needs energy, and Russia, which deprived itself of European sales through the war, needs to redirect its production so that it does not have to limit it.

China National Petroleum Corporation and Gazprom already signed a 30-year contract in 2014, when the companies were supposed to build the new Power of Siberia pipeline. The project has a 2,200-kilometer section in Russia and another 3,400 kilometers in China. The gas pipeline is supposed to lead through the entire Middle Kingdom around Beijing to Shanghai.

MAP: Power of Siberia oil pipeline connected Russian gas fields with the Chinese market

The Power of Siberia pipeline is supposed to fundamentally increase the possibilities of exporting Russian natural gas to China. The first section was opened in 2019. In 2025, it should have a capacity of 38 billion cubic meters of gas. Source: Khu’hamgaba Kitap/CC BY-SA 4.0

Source: Khu’hamgaba Kitap/CC BY-SA 4.0

The gas pipeline was partially launched in 2019. It is expected to reach a capacity of 38 billion cubic meters of gas per year (for comparison, Nord Stream 1 and 2 each have a capacity of 55 billion cubic meters of gas) in 2025. Of course, the Kremlin seeks to replace the shortfall gas sales in Europe. In particular, it strengthens exports to two large Asian economies – China and India.

“What Russia sells to China is based on contract prices. In my opinion, the agreement between China and Russia for the Force of Siberia 1 was more advantageous for China, also in terms of price,” explained Mikulská.

Russia will further weaken, China will strengthen

If China continues to increase LNG sales to world markets, it will break Gazprom’s export monopoly, believes EU diplomat and East Asia specialist Albrecht Rothacher.

Power of Siberia oil pipeline
Power of Siberia (Russian: Сила Сибири – Sila Sibiri) is a gas pipeline in the Russian Far East. Since 2019, natural gas has been flowing from Sakha and the Irkutsk region to the Pacific coast, partially running parallel to the East Siberia-Pacific Ocean pipeline. It serves to export Russian natural gas to China. Its construction was decided in 2014 in connection with the conclusion of a 30-year contract between the two states for gas consumption in the volume of 38 billion cubic meters per year.

In the long term, this will further weaken the whole of Russia economically and politically. On the other hand, it cannot be expected that the outage of Russian gas will be replaced by several dozen LNG tankers from China. Moreover, if there is a recovery in China’s economy, it will need natural gas on its own.

Europe will thus have to diversify its sources of natural gas suppliers from Norway, Algeria, Qatar, the United States of America, the United Arab Emirates, Turkmenistan, Azerbaijan, Oman, Israel and possibly Iran (if there is an agreement on the nuclear program and the lifting of sanctions).

According to Mikulská, both Europe and the United States will have to start addressing the fact that in the case of closer economic cooperation between Moscow and Beijing, both economies can more easily manipulate world gas and oil prices. That is why, at least for this winter, an artificial ceiling on the prices of energy commodities can be expected.

Brussels: We are in an energy war with the Kremlin

The head of the European Commission, Ursula von der Leyen, argues that Russia has been manipulating natural gas prices for a long time. And thus affects the final electricity prices.

According to her, in addition to the actual war, Putin “has unleashed a war with our energy and our economy.” She called for an end to energy dependence on the Kremlin’s aggressive policy.

A total of 140 billion euros is to go to the Union to help people and businesses deal with high energy bills. Brussels bureaucrats want to get money mainly by extra taxation of energy and mining companies.

Reference price for gas

There should also be a price freeze on energy exchanges if they do not function properly. Von der Leyen also announced that officials are working to establish a “reference” price for natural gas. This price will reflect import costs for LNG and will be netted of speculative price increases caused by the Kremlin.

However, the elaborate reform of the energy markets will not be on the table until the first months of next year, added Commission Vice President Frans Timmermans. For now, member countries are supposed to reduce energy consumption: total consumption by ten percent each month, electricity at peak times by five percent.

The article is in Czech

Tags: Europe gas China partially resells Russian LNG

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