China rescues Europe with its surplus gas

China rescues Europe with its surplus gas
China rescues Europe with its surplus gas
31 August, 20:15EconomyPhoto: Соцсети
Due to low demand for fuel in their own economy, the Chinese decided to sell unnecessary gas to Europeans.

Europe's fears of winter gas shortages may have been allayed by China's surprise move, according to Japan's Nikkei Asia.

The world's largest buyer of liquefied natural gas is reselling some of its surplus LNG due to weak domestic energy demand. This provided the spot market with sufficient supply, which Europe took advantage of despite high prices.

As a result, Europe's LNG imports rose 60% year-on-year in the first six months of the year, according to research firm Kpler. The 53 million tons that the EU has bought exceeds imports from China and Japan and has brought Europe's gas storage capacity to 77%.

If this trend continues, Europe is likely to hit its stated target of filling 80% of its gas storage by November.

But while the economic downturn in China has brought much-needed relief to Europe, that could all change once economic activity in communist China recovers, the paper said. In addition, these purchases make Europe dependent on Beijing for energy, which goes against the geopolitical trend in which the US and its allies seek to protect the liberal international order.

What made energy-dependent China change itself and become a seller?

First, the sluggish economy. The real growth of the gross domestic product for the first half of the year amounted to only 2.5%. “City lockdowns have led to a decrease in demand for industrial fuels and chemicals, which in turn has led to a decrease in gas demand in the first half of the year,” analysts at the Marubeni Research Institute said. “It doesn’t look like it will increase much in the second half of the year.”

Secondly, the Chinese government issued a directive to increase energy production, including coal. “Now the emphasis is on energy security, not on reducing environmental impact.”

China's own gas production is also expanding. Domestic gas production is expected to rise 7% year-on-year in 2022, according to gas consultancy Sia Energy.

On the other hand, China's LNG imports are likely to fall by 20% for the year.

The reduction in Chinese imports affected world prices. LNG prices in Asia are currently more than $10 lower than European natural gas.

According to the US Energy Information Administration, Russian gas supplies to Europe are at their lowest level in 40 years. Gas passing through pipelines is only 20% of what it was a year ago.

Europe reacted by buying LNG on the spot market, despite higher prices, and agreed to cut natural gas consumption by 15% by March next year.

With these emergency measures, Europe hopes to get through the coming winter, even if gas flow through the pipeline is 80% lower than usual. The hidden result of these developments is that China is increasing its influence in the energy market.

If Russia ends up exporting more gas to China to punish Europe, China will have more opportunities to resell the surplus on the spot market, helping Europe indirectly. However, as Europe tries to get rid of energy dependence on Russia, the irony of fate lies in the fact that it is becoming more and more dependent on China, the publication concludes.

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