A month and a half ago, there was a startling discovery: China was aggressively reselling LNG imports from Russia, the country’s fourth-largest supplier of LNG so far in 2022 having surpassed both Indonesia and the US, to Europe and thanks to the continent’s unprecedented desperation for gas, it was charging pretty much whatever markup it wanted.
But maybe not any more.
According to Bloomberg, Chinese state-owned energy giants have been recently told by authorities to stop reselling liquefied natural gas cargoes (certainly those from Russia) to gas-starved Europe, in what could be a blow to the European hopes of continuous high inflows of LNG as the winter approaches.
China’s National Development and Reform Commission (NDRC), the country’s top planning body, told the country’s state-held LNG importers including Sinopec, PetroChina, and CNOOC, that they should stop reselling LNG cargoes and keep them to ensure Chinese gas supply this winter, Oilprice reported citing Bloomberg sources.
The decision could deepen Europe’s energy crisis as the continent continues to face extreme natural gas shortages, spurring governments to encourage electricity rationing as household electricity prices continue to soar.
In recent months, as reported first in August, Chinese LNG importers have been selling their excess inventories to Europe and reaping substantial profits from the sales because of lackluster demand in China. Chinese domestic demand has been squashed by rolling waves of city-wide Covid lockdowns and a slowdown in economic growth.
As a result, Chinese sales of LNG have been a relief to the European market so far this year. But as China now moves to cater to its own energy security this winter, Europe’s precarious LNG supply – much of which was a function of continued Chinese reselling of embargoed Russian gas – could dwindle just ahead of the winter heating season.
Europe’s fuel shortages have been exacerbated by reduction of natural gas supplies via the Nord Stream 1 pipeline in response to European sanctions following Moscow’s invasion of Ukraine.
China became an important exporter of LNG after global supplies became disrupted by the war in Ukraine. The nation’s strict COVID-19 policies left suppliers with excess natural gas due to low domestic fuel demand, according to Business Insider. More than four million tons of Chinese LNG, or roughly 7% of Europe’s imports in the first half of 2022, were estimated to be resold in August, according to Nikkei Asia.
Chinese President Xi Jinping said Sunday that China must continue to use fossil fuels to ensure its energy security during a speech, according to Bloomberg.