Russian Energy Exports Benefit from US-China Trade Spat

Although China and the United States have agreed a 90 day truce in their trade war, and suspended the threat of additional tariffs, the issue has played to Russia’s advantage – almost certainly an unintended consequence by Washington.

Beijing has turned to alternative crude and natural gas suppliers since August, when it became apparent the threat of US tariffs were real, benefiting Russia’s energy industry. The 90 day tariff ceasefire is unlikely to change supply chains put in place since then as there is no certainty of a longer lasting solution. This means American oil and liquefied natural gas (LNG) are giving way to Russian hydrocarbons on the Chinese energy market. Reuters reported that US LNG exports to China were rapidly declining as the Sino-American trade war began to bite. Prior to this, China was expected to import 141.6 billion cubic feet (bcf) of US LNG this year. Now the total will be less than 100 bcf of US LNG – less than 2017. Somewhat predictably, this supply gap was filled by international market players with Russia steadily increasing its LNG exports to China.

The two countries are also implementing the joint Power of Siberia pipeline project aimed at delivering 38 billion cubic metres (bcm) of natural gas annually for 30 years to China, while Russia has also offered China its own super-chilled fuel produced by Novatek’s Yamal LNG in direct competition to the United States.

In July this year, Novatek delivered its first cargo of LNG to China through the Northern Sea Route and has also been supplying India.

Novatek is also involved with China National Petroleum Corp (CNPC) and China’s Silk Road Fund in financing and developing the Arctic LNG 2 plant, in the Ob Bay, scheduled to become operational in 2023.

In crude oil, Russia’s imports to China have increased 58 percent from last year, reaching about 1.73 million barrels per day (bpd), according to the Russian General Administration of Customs data. “Russian oil has the best prices and best availability,” Li Li, director of research at Shanghai-based research and consulting firm ICIS China was quoted as saying in China’s Global Times.

It will be hard for the United States to win back this trade given accusations it is becoming an “unreliable” trade partner. This also comes at a time of Chinese LNG consumption growth. LNG consumption in China last year increased by 14.8 percent, to 238.6 bcm. In 2020, it is expected to reach 270 bcm.

“I noted a pushback against the United States at the SPIEF forum in St. Petersburg earlier in the year,” says Chris Devonshire-Ellis of Dezan Shira & Associates. “The United States has overplayed its hand in terms of introducing trade tariffs and sanctions and this is leading to implied American unpredictability. With commodities such as energy, food, and other basic consumables Washington has rather shot itself in the foot by taking on markets that require sustainable supplies. Countries such as Russia will step into the breach left by these damaging threats and the US will and is losing market share as a result. National markets need predictability of service and the United States is not delivering this. It has developed short-termism as a strategic way of thinking and this is completely out of step with countries such as China and Russia’s planning methodology.”

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