Aurelia Butler

Europe’s fears of gas shortages heading into winter may have been circumvented, thanks to an unexpected white knight: China.The world’s largest buyer of liquefied natural gas is reselling some of its surplus LNG cargoes due to weak energy demand at home. This has provided the spot market with an ample supply that Europe has tapped, despite the higher prices.As a result, Europe’s imports of LNG grew 60 per cent year on year in the first six months of 2022, according to research firm Kpler. The 53mn tonnes that the bloc purchased surpasses imports by China and Japan and has brought Europe’s gas-storage occupancy rate up to 77 per cent.If this continues, Europe is likely to reach its stated goal of filling 80 per cent of its gas storage facilities by November.But while China’s economic slump has brought much-needed relief to Europe, it comes with a major footnote. As soon as economic activity bounces back in the communist nation, the situation will quickly reverse. It also makes Europe dependent on Beijing for its energy, which bucks the geopolitical trend whereby the US and its allies are seeking to defend a liberal international order.

An LNG ship docked at a port in Chiba, Japan. China’s resales of LNG have added supply to the spot market © Shinya Sawai

For now, however, Europe has been able to avoid an energy crisis.China’s JOVO Group, a big LNG trader, recently disclosed that it had resold an LNG cargo to a European buyer.A futures trader in Shanghai told Nikkei that the profit made from such a transaction could be in the tens of millions of dollars or even reach $100mn.China’s biggest oil refiner Sinopec Group also acknowledged on an earnings call in April that it has been channelling excess LNG into the international market.Local media have said that Sinopec alone has sold 45 cargoes of LNG, or about 3.15mn tonnes. The total amount of Chinese LNG that has been resold is probably more than 4mn tonnes, equivalent to 7 per cent of Europe’s gas imports in the half year to the end of June.So what has led energy-hungry China to change course and become a seller?First, its sluggish economy. Real gross domestic product growth for the first half was a mere 2.5 per cent. “Urban lockdowns led to a decline in demand for industrial fuel and chemicals, which in turn resulted in lower gas demand in the first half,” said Xuelian Li, a senior analyst at the Marubeni Research Institute. “It doesn’t look like it will increase much more in the second half,” she said.Second is a directive from the central government to bolster energy production, including coal. “The emphasis is now on energy security, more than reducing the environmental footprint,” said Mika Takehara, a senior researcher at the Japan Oil, Gas and Metals National Corporation.Shanxi province, for instance, has increased coal production by 100mn tonnes to 1.3bn tonnes this year, and will add a further 50mn tonnes in 2023, according to local media.China’s own gas production is also expanding. Domestic production of gas is expected to grow 7 per cent year on year in 2022, according to gas consulting firm Sia Energy.China’s LNG imports, on the other hand, will probably decline 20 per cent for the year.China’s decreased imports have affected international prices. LNG prices in Asia are currently about $45 a million British thermal units — more than $10 cheaper than European natural gas, which goes for more than $60 a million BTU.The difference in prices reflects the gap in demand. Last year, when China bought aggressively from the spot market, Asian prices were higher than in Europe.

A valve is checked at the Atamanskaya compressor station, part of Gazprom’s Power Of Siberia natural gas pipeline than runs between Russia and China © Maxim Shemetov/Reuters

Today, the demand is in Europe. Russian gas supply to Europe is at a 40-year low, according to the US Energy Information Administration. Gas running through pipelines is just 20 per cent of what it was a year ago.Europe has responded by buying LNG on the spot market — regardless of the higher prices — and has agreed to reduce natural gas consumption by 15 per cent by March next year.Through these emergency measures, Europe looks to weather the coming winter, even if pipeline flows are 80 per cent lower than at normal times.But there is always the possibility that gas imports from Russia could ultimately fall to zero, said Toshiyuki Makabe, an analyst at Goldman Sachs.In that scenario Europe would have to purchase almost everything left on the spot market — an unrealistic task.The hidden outcome of these developments is that China is increasing its clout in the energy market.If Russia ends up exporting more gas to China as a means to punish Europe, China will have more capacity to resell its surplus gas to the spot market — indirectly helping Europe.The Power of Siberia natural gas pipeline that runs between Russia and China has capacity to carry more gas.The amount of gas that China itself produces will also affect Europe’s energy procurement plans.The more desperate Europe becomes about its energy supplies, the more China’s policy decisions will have the power to affect the bloc. As Europe attempts to wrestle out of its dependence on Russia for energy, the irony is that it is becoming more dependent on China.A version of this article was first published by Nikkei Asia on August 24. ©2022 Nikkei Inc. All rights reserved.Related storiesRussian sanctions threaten to make coal dirtier, more costlyMyanmar to import Russian oil from September, military saysAzerbaijan eager to supply more gas to Europe in Russia’s steadRussia’s nuclear fuel dominance impedes Western energy independence More

Good morning. Ukraine said it had launched a counter-offensive against Russian forces near the city of Kherson, in a shift that has forced the Russian military to move resources to the southern part of the country, according to a top White House official. A senior Ukrainian government adviser confirmed Kyiv had begun a major operation aimed at retaking the strategically important southern city that was captured by Russian forces early in the war.“The next phase of the counteroffensive is beginning,” the adviser said. “It started with massive attacks on Russian military infrastructure and logistics.” The long-anticipated assault on Russia’s forces is aimed at recapturing territory Moscow seized in the early weeks of president Vladimir Putin’s invasion, when troops swarmed in from the Crimean peninsula to the south. Keep up with the latest on the counter-offensive with our live blog. In the wake of the Russian invasion of Ukraine, Europe’s benchmark electricity price has risen to 10 times its decade-long average, in line with a 14-fold increase in the cost of gas, with fears growing of shortages this winter. In response, the EU is preparing emergency measures to curb the price of electricity by separating it from the soaring cost of gas.More news from Ukraine: A team from the UN’s nuclear watchdog is heading to Ukraine to inspect the Zaporizhzhia nuclear power plant, which has come under repeated fire, raising fears of a catastrophic accident.Thanks for reading FirstFT Asia. — EmilyFive more stories in the news1. Honda and LG to build $4.4bn US battery plant The Japanese carmaker and South Korean battery maker are teaming up to invest $4.4bn for a new battery plant in the US, amid increasing pressure from Washington to cut China out of supply chains for electric vehicles. It will be Honda’s first manufacturing facility for EV batteries in the US.2. Ambani says India can rival China in green tech Billionaire Mukesh Ambani said India can become a “credible alternative” to China for green energy production, as he outlined the details of Reliance Industries’ $10bn investment in renewables at the company’s annual general meeting.3. Singapore to tighten retail access to cryptocurrencies Singapore’s financial regulator has announced it will further restrict retail investor access to digital currencies after a series of scandals in the city state. Ravi Menon, managing director of Singapore’s monetary authority, said that cryptocurrencies are not a “viable form of money or investment asset” owing to their extreme price volatility.4. US officials finish initial review of Trump’s Mar-a-Lago documents In a court filing on Monday, prosecutors disclosed that the US justice department has completed a review of the documents seized from Donald Trump’s Florida estate earlier this month. 5. Global equities drop as Powell’s comments drag markets lower Global stocks weakened and Treasury yields climbed after central bankers warned investors to prepare for a sustained period of higher interest rates. US Federal Reserve and European Central Bank policymakers used speeches at last week’s annual meeting to reiterate their commitment to fighting inflation, despite the risk of recession.The day aheadVostok military exercises Russia and China will embark on a series of military exercises this week, a sign of Moscow’s deepening ties with Beijing and of the Kremlin’s desire to project a “business as usual” image despite the mounting costs of its war in Ukraine. The Vostok war games are held every four years in Russia’s far east.Results Today is a bumper day for corporate earnings in China. Those reporting results include Air China, Baidu, Bank of China, China Eastern Airlines and China Southern Airlines.What else we’re reading Inside Missfresh’s hunt for investor cash ahead of collapse Court filings, investor presentations and interviews with several people involved reveal the dangers of investors too readily believing the hype of a company supposedly at the vanguard of the Chinese tech start-up scene in the hopes of making quick returns.Kishida turns Japan’s energy problems into nuclear opportunity In a 27-page document that accompanied last week’s announcement of Japan’s biggest U-turn in nuclear policy in 11 years, the word “crisis” was used seven times. The single word encapsulates why Prime Minister Fumio Kishida has risked political capital to end a paralysis that has hung over the country’s energy sector since the Fukushima Daiichi nuclear disaster.Liz Truss’s not-so-special relationship Britain’s foreign secretary, on the cusp of becoming prime minister, has at times irked US officials with a not-so-diplomatic style that has been described as blunt, binary and assertive. Some say Truss is quick to take maximalist positions without thinking of the consequences.Can web3 help get us to net zero? A mass of tech ventures are exploring how to fuse concerns about global warming with the public’s interest in web3 technology. From the mundane to the outlandish and wacky, these projects are promising variously to “green” bitcoin, make NFTs sustainable and solve niggling problems in carbon markets once and for all. Can they work?Boom chief fights supersonic travel headwinds The makers of Overture have claimed they can cut flight times from New York to London from 6.5 hours to 3.5 hours, while Tokyo to Seattle would drop to 4.5 hours from 8.5 hours. But the absence of an engine-maker for the supersonic jet is one of several factors fuelling aviation industry doubts about the claims.GardensAdrian Fisher wants you to get lost. So much so, he’s made a career out of it. For the past 43 years, he’s been designing mazes and labyrinths in the quiet village of Durweston near Salisbury. Click here to explore Fisher’s maze.

The centre of the Marlborough Maze spells the word Blenheim in yew trees © Blenheim Palace More