China bans re-export of natural gas to Europe

The last “hole” through which Russian gas previously “leaked” from EUclosed: China has banned its export, and in fact – resale.

The Chinese ban is specifically aimed at EU countries that have found a “hole” in the Russian embargo. In particular, China has instructed its state-owned gas importers to stop reselling LNG to buyers desperate for energy in Europe and Asia in order to secure their own supplies in time for the winter heating season. The National Development and Reform Commission, the country’s main economic planning body, has asked PetroChina Co, Sinopec and Cnooc Ltd. reserve winter cargo for domestic use, according to people familiar with the matter, who asked not to be identified as the information is not public.

While the sales have provided some relief to European buyers, rapid stock replenishment and historically high transportation costs have also reduced the appeal of transshipment. China’s state-owned companies did not respond to Bloomberg’s requests for comment.

Predictions of a slight shortfall in gas supplies likely prompted Beijing to take the step, which has left many Europeans without heating in their homes this winter. Russian gas re-exports signaled a sharp recovery for China, which overtook Japan last year to become the world’s largest LNG importer thanks to rising spot market purchases, but could face a drop in gas consumption for the first time in 2022.

Energy importers will be watching closely as Chinese leaders gather in the Chinese capital for a week-long party conference. President Xi Jinping emphasized energy security in his two-hour speech on Sunday, echoing the rhetoric that the country should wisely switch to green technologies to avoid the risks of a supply crisis.

Gas prices in Europe have fallen by almost 60% from their August high, although they are still at a record high for this time of year as the EU tries to avoid supplies from Russia after its invasion of Ukraine in February. A flurry of LNG supplies to Europe is putting pressure on spot prices in the region, prompting some suppliers to consider switching supplies back to Asia, where prices are more attractive.

However, China’s move to secure its own supplies could lead to a reduction in supplies to Europe and exacerbate the energy crisis in the region in the event of a cold winter. China has large contracts to buy LNG from exporters like the United States, with the Asian country’s traders diverting some supplies to Europe this year amid lackluster domestic demand.

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