Where does China get its energy and why does it matter for Europe?

European energy security these days depends on the following factors:

• Internal demand in Europe

• Global LNG production and in particular, US and Qatar LNG export volumes

• Volume and composition of China's energy imports

There are other seemingly important factors:

• Internal production in Europe (including UK and Norway) – but this is quite stable and is not changing on month to month basis

• Russian exports to Europe – but when it comes to pipeline gas, it is a) 1/6^th of its former self, still material, but a much smaller share of the European consumption, and Russia does not seem prepared to cut it any further

• Russian LNG exports – Russia seems to treat it as a non-destination-specific export, like crude oil and keeps it going prioritizing revenue over political considerations. Besides, a large portion of it, coming out of Yamal LNG project, is controlled by TotalEnergies and CNPC and Russia is apparently unwilling to upset these partners by telling them to stop exporting.

• With that in mind, let’s take a look at the Chinese energy imports in the last 2 ½ years.

There are two charts to consider:

I am concentrating here on gas and coal, which to large extent serve as substitutes for each other in power generation and industrial use, leaving oil, which is predominantly used in transport sector, aside.

China’s energy demand went down at the beginning of 2022, even before the Russian-Ukrainian war, but LNG demand was the slowest to recover, obviously due to price signals, but to a large extent it was compensated by the growth of the pipeline gas imports.

As we can see, all of this growth came from Russia, as it increased its supplies via the Power of Siberia pipeline. Russia has been smug about being able to compensate for its lost sales to Europe by growing exports to China, while keeping Europe short of gas – it turns out, that gas market has become really global and China reduced its LNG purchases proportionately, leaving them on the market for the European buyers.

This chart provides another interesting observation – looks like, Central Asian countries are struggling to keep up with their sales volumes in winter (Uzbekistan – 3 years in a row, Kazakhstan – 2 years, Turkmenistan sipped down significantly last winter), but Russia is there to serve as a swing supplier. There is probably something to think about while contemplating China’s gas supply portfolio strategy.

PS Since the beginning of 2022, China has been hiding some information on its pipeline gas imports, by reporting only aggregate volume numbers, however, I was able to decipher price formulae used in the contracts between China and its pipeline suppliers and calculate the volumes based on the monthly monetary value. I have used the monthly total volumes as a check and the sum of the per-country volumes calculated this way is within 1-2% of the reported total.
(More on this here: https://carnegieendowment.org/politika/89552 )