Who benefits from soaring gas prices in Europe? China is one of the winners of the energy crisis caused by the Russian war in Ukraine. A major energy importer, China is facing a slowdown in its domestic demand. In recent months, it has been reselling its surplus liquefied natural gas (LNG) on the markets, the prices of which are breaking records. And this LNG for which Europe has become greedy comes, among other places, from Russia.
It is a paradox of the energy crisis we are going through. Russian gas, which no longer reaches Europe through the usual gas pipelines, partly returns there via China, at a high price. As Europe tries to break out of its energy dependence on Russia, it is creating a new form of dependence on both Russia and China, by generously financing their savings.
Life buoy
The Financial Times recently explained that China has become the lifeline of the European Union, which is desperately trying to secure its gas stocks in anticipation of the winter. Miracle: the objective of filling the reserves to 80% by November is already reacheddespite the reductions in Russian deliveries and shutdown of the NordStream 1 gas pipeline. Russia’s share of EU gas imports European Union fell in six months from 40% to 9%, according to the Commission.
At the same time, LNG imports into the EU have increased by 60% compared to 2021. Transported by ship, liquefied gas sees its volume reduced 600 times! Each LNG carrier therefore contains a gigantic energy potential.
China imports too much LNG
One of the unexpected players in this miracle is China. However, Beijing is not a traditional gas exporter: despite its growing production, it has to import 40% of its needs. But China’s economy has been sluggish in recent months, among other because of the policy zero covid which imposed confinements and production stoppages.
The world’s largest importer of LNG, China now has too much gas and is putting it back on the market. This unexpected offer meets the immense thirst of Europe, ready to pay a high price to get their hands on this LNG.
Resale on the spot market
Chinese energy companies are largely winners: they would resell their cargoes at two to three times the price to Europeans on the spot market. Contrary to the futures market, the spot market makes it possible to buy in cash cargoes that exist physically and whose transport is already in progress.
The Sinopec group, China’s largest oil refiner, sold 45 full deliveries of LNG in this way. China is estimated to have sold at least 4 million tonnes of excess LNG this year. This volume represents 7% of the natural gas imported by Europe during the first six months of this year.
The Chinese confession
Beijing remained discreet regarding these juicy operations until recently. The Chinese daily Global Times just posted an article openly acknowledging the mechanism: “Chinese LNG companies are increasing their supplies amid growing demand from European customers.” The article explains that in August, Chinese companies once more increased their purchases abroad by more than 10% in order to resell the gas to European customers. However, the origin of this gas remains unclear.
For the specialized site oil.comthe answer is obvious: China resells “calmly” Russian gas to Europe. Its LNG imports from Russia jumped nearly 30% from a year earlier, while other energy imports declined. Internal demand for LNG has indeed fallen sharply due to the country’s health, climatic and economic difficulties.
Price multiplied by two or three
Beijing is no longer hiding it: Chinese operators are buying the gas cargoes available to resell them to Europeans, multiplying the price by two or three in the process, according to oil.com. These companies thus pocket the profit drawn from their role of intermediary between two major and interdependent actors, but which want to deal more directly, Russia and Europe.
How long will this anomaly continue? Experts point out that as soon as Chinese economic growth picks up once more, the country will stop selling LNG purchased from Russia or elsewhere to allow its industry to revive. For its part, Europe, taken by surprise by Russian behavior, is radically reorganizing its energy market, accelerating its objective of reducing the consumption of fossil fuels. Dependence on gas and oil should be reduced in the coming years.
