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China gets a windfall of energy as the West turns away from Russian supplies

Image: Reuters Berita 24 English - This year, China is buying more and cheaper energy supplies from Russia. This is because the Ukraine cris...

Image: Reuters


Berita 24 English - This year, China is buying more and cheaper energy supplies from Russia. This is because the Ukraine crisis is forcing Russia to look for other markets, which is good for China because it needs the money.


The growing cooperation is good for both countries. On Thursday, Chinese President Xi Jinping and Russian President Vladimir Putin will meet in Uzbekistan to talk about how to make it even better.



China can now get cheaper energy, and Russia can make up for the fact that the European Union and other allies are buying less of its exports because of sanctions over its invasion of Ukraine. It is called a "special military operation" by Moscow.



China buys electricity from Russia. Closer ties between China and Russia have also led to more trade in commodities using the yuan and the rouble instead of the U.S. dollar.



China uses the most energy in the world and is the top buyer of crude oil, liquefied natural gas, and coal. From April to July, China bought 17% more crude oil from Russia than it did during the same time last year.



During the same time period, it bought 50% more LNG and 6% more coal from Russia. It also bought 39% more electricity from Russia, mostly through a transmission line that connects northeast China and Russia's Far East.



So far this year, China has bought $43.68 billion worth of oil, gas, coal, and electricity from Russia.



China's economy almost went into recession in the second quarter because of COVID-19 lockdowns. Cheaper energy supplies from Russia are helping to slow down inflation in China.



Zhuwei Wang, manager of Asia Oil Analytics at S&P Global Commodity Insights, said, "The upcoming meeting between Xi and Putin is likely to strengthen China's ties with Russia in energy trade for both countries' benefit." This is important because Russia is dealing with more sanctions from the west, while China needs low-cost energy to boost its economy, which has been hurt by COVID lockdowns.



PROFITABLE TRADE



China's customs data show that from May to July, Russia was the country that sent China the most crude oil. During that time, 19% of China's crude oil imports came from Russia, up from 15% during the same time in 2021.



In August, the Dutch bank ING said that Moscow's share could grow to more than 20% this year.



Reuters used customs data to figure out that between April and July, China saved about $3 billion by buying oil from Russia instead of other imports. China paid about $708 per tonne for crude oil from Russia, while it paid $816 per tonne for crude oil from everywhere else.



In the first seven months of this year, China bought 26% more LNG from Russia than it did in the same time last year. At the same time, China's LNG exports to Europe and Japan hit a record high of 66,798 tonnes in July, the highest level since 2019.



Saul Kavonic, head of Integrated Energy and Resources Research at Credit Suisse, said, "China is taking advantage of the disruptions in trade flows by, for example, buying Russian oil and LNG cargoes at lower prices and swapping them back into Europe at higher prices to make a profit."



China also has long-term reasons to get more gas from Russia as it tries to meet new goals for reducing carbon emissions and increasing gas use. Because of this, a deal was made in February for a new pipeline to start from Russia in the next two to three years.



BUILDING COAL STOCKS



China's imports of coal from Russia hit their highest level in at least five years in July. This was because China bought coal at a discount while Europe avoided Russian shipments before a ban went into effect on August 11.



In late July, Russian thermal coal with a heating value of 5,500 kilocalories (kcal) sold for around $150 a tonne on a cost-and-freight basis, while coal of the same quality at Australia's Newcastle port was valued at more than $210 a tonne on a free-on-board (FOB) basis.



China is buying more coal from Russia.



Even though Russian supplies only meet about 1% of China's needs, some traders expect more Russian coal to arrive in the fourth quarter as utilities stock up for the winter heating season.



Analysts said it's clear that China is getting more out of the trade, but Russia is still more dependent on it than China.



"No matter how the war ends, it is clear that Russia can no longer rely on its major energy export markets in Europe for the foreseeable future, and its energy and commodity exports to the East will pick up speed," Tilak Doshi, managing director of Doshi Consulting, said.



$1 is worth 6.9294 Chinese yuan.

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