Energy-strapped Europe has been importing some of its liquefied natural gas (LNG) from China, with the latter claiming that its economic slowdown has left it with a surplus of natural gas.
China, which is the world’s second-largest buyer of liquefied natural gas, is in the midst of a sharp economic slowdown from Beijing’s strict zero-COVID policy and the crisis in its property sector.
According to a Nikkei report that cited data from research firm Kpler, Europe’s imports of LNG went up 60% year on year in the first half of the year. The bloc has purchased 53 million tons so far, surpassing purchases by China and Japan, which has helped fill up Europe’s gas storage occupancy rate to 77%.
The bloc recently announced that it’s been able to fill 80% of its gas storage facilities, ahead of target.
The surplus in China is also driven by a directive from the central government to increase energy production, with emphasis on fortifying energy security, more than reducing their environmental footprint.
Local media reported that Shanxi Province has dramatically raised coal production by 100 million tons to 1.3 billion tons this year, and add 50 million more tons in 2023. The country’s domestic gas production is also expected to grow 7% year on year in 2022.
As Russia exports more gas to China, China will have more “surplus” to resell to the spot market, which desperate Europe will still likely buy, regardless of the higher prices.
And so China’s temporary relief comes with a warning. Not only does it help Russia circumvent EU sanctions, but ultimately, it fosters Europe’s reliance on Beijing for energy, effectively, and ironically, swapping Russia for another autocracy.
Information for this briefing was found via Nikkei Asia, SCMP, and the sources and companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.