China Halts Resales Of Russian LNG To European Buyers

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by Tyler Durden
Monday, Oct 17, 2022 - 09:00 PM

A month and a half ago, we made 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.

In recent months, as we 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.

Gas prices in Europe have dropped from record highs and hit on Monday the lowest level in three months after the EU was reportedly looking to introduce measures to limit the market volatility of the benchmark European natural gas prices at the Dutch TTF hub. According to a draft document that Bloomberg News has seen, the European Commission is set to propose measures to limit extreme price spikes in derivatives trading; it isn't exactly clear how Europe - which is desperately short any and all commodities heading into the winter - will actually enforce any price or volatility caps.

European gas storage sites were 92% full as of October 16, according to data from Gas Infrastructure Europe. The storage sites were filled faster than the EU and many individual members had initially planned. Although gas in storage alone will not be enough to see an economy such as Germany’s through the winter, the faster-than-planned gas storage filling has eased somewhat supply concerns, for now.  Also, as most industry watchers have realized, the big risk is not this winter but that of 2023.