China Is Aggressively Buying Up Cheap Russian LNG at a 50% discount

Bloomberg reported that Russia is still selling liquefied natural gases from Sakhalin-2 in the Far East to China at half the price and still making profits, citing unnamed traders.

  • Russia is selling Sakhalin-2 liquified gas at half the price and the operating company (a new state-owned entity) is still making profits.
  • China imported Russian LNG in August at its highest level since most of 2019, when it bought volumes previously sent to Japan and South Korea.
  • China has seen its imports of US liquified gas decline, as Europe has been paying more for these shipments.
    “Russian supply is still making it into the market, just a reorganization trade flows via market participants that don’t have any issues with accepting Russian cargoes,” Saul Kavonic (an energy analyst at Credit Suisse) told Bloomberg.

According to Bloomberg, South Korea and Japan were the two largest buyers of Sakhalin-2 LNG after Russia invaded Ukraine. Japan continues to receive Russian LNG from Sakhalin-2 but under different contracts.

“It seems that China is happy to accept Russian LNG cargoes at discounted prices, in exchange for alternative supplies that can be directed to Europe at greater prices.”

Despite the discount, LNG prices have risen so much this year that Sakhalin-2’s operator is still making profits. The new operator is a state-owned entity, which has replaced the old consortium.

Two Japanese partners were allowed to retain their shares in the new entity. Shell sold its 27.5% stake in the project.

Bloomberg reports that China’s imports from Russian liquefied gas have risen to their highest level since at least 2019, in August. However, shipments to the United States have been declining as they are diverted to Europe. Europe is willing to pay a premium to get the supply.

Poland suggested this week that the European Union set a price limit on all gas imports. This is because the cost of alternative gas supplies contributes to energy price inflation across the bloc.

The European Commission has not yet proposed a Russian gas price cap. This is in line with the logic used by the G7 to impose an oil price limit on Russian exports.

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