Russia wants to sell more energy to Asia but has to cut prices

BEIJING – Last year, the Grand Aniva, a Russian oil tanker with four spherical tanks to hold ultracold liquefied natural gas, sailed back and forth between a gas field in eastern Russia and deposits in Japan and Taiwan. But two days after Russia invaded Ukraine, the ship changed course, sailing to China instead.

The oil tanker’s voyages, the length of three football fields, underscored that Russian President Vladimir V. Putin can still find buyers in Asia for his country’s fossil fuel exports despite Western sanctions. He needs to seek buyers as governments demand more pressure on his country to try to stop his war in Ukraine, including a planned move. in the next days from the European Union to gradually stop imports of Russian oil.

Mr. Putin called on April 14 for his country “to gradually redirect our exports to the fast growing markets of the South and East”. Two obvious destinations are China, the largest energy market in the world, and India, the third largest in the world. (The United States is number 2 for energy consumption.)

But any attempt to shift Russia’s energy exports to Asia from Europe would face major obstacles. Russia should offer hefty discounts to make its oil and coal exports worth the risk and cost to buyers and should begin the years-long task of building more ports and pipelines for natural gas exports.

The redirection of Russian natural gas to Asia from Europe would require the construction of extremely long pipelines or specialized ports such as that of the Russian island of Sakhalin from which the Grand Aniva sails. Such ports are capable of cooling natural gas so that it condenses into a liquid, which can then be sent by ship.

Sending oil to Asia would also require transportation by ship. But due to Western financial sanctions on the war in Ukraine, insurers are refusing to cover the oil tankers with Russian cargoes. Banks refuse to lend money while the oil is in transit. So oil companies in countries like India have asked for very large price discounts to cover the additional costs and risks.

Coal exports, which can be loaded onto trucks or trains to China, face the fewest logistical obstacles. But Russia’s coal exports are worth only a tenth of its oil exports and a quarter of its natural gas exports, data from the Russian Federal Customs Service shows. And Western sanctions on the use of dollars for transactions with Russia are dampening China’s demand for Russian coal.

“Even Chinese private coal traders do not want to touch Russian coal these days for fear of Western sanctions,” said Zhou Xizhou, longtime Chinese energy specialist who is now at S&P Global.

Despite the hurdles, world energy leaders are betting that Russia can find a way to at least export oil and coal, largely because global demand remains high. The world has been running out of energy since the fall, when China nearly ran out of coal and suffered widespread electrical blackouts.

Prices have risen sharply since last year for natural gas, oil and coal. Stopping any Russian energy from reaching world markets could push them even higher.

“This is actually a potentially more significant energy crisis than in the 1970s: it was just oil, it was simpler,” said Daniel Yergin, an energy historian and author of books like “The Prize” and “The New Map” .

Some energy leaders are calling for policies that do not completely block Russian energy exports. Instead, the goal should be to make it very difficult for Russia to export, they say, so that it does so only at very low prices.

“The main problem is not to reduce or cancel Russian exports to Europe, but to reduce Russian oil and gas revenues: they are not the same thing,” Fatih Birol, executive director of the International Energy Agency told on the phone. Paris interview.

The expectation is that Putin will keep oil and coal moving by, in effect, maintaining the largest sale in the world.

Russia needs every dollar of export revenue it can get right now. It is teetering towards default on its foreign debt. It has lost a large part of its foreign investments. And Western governments have frozen half of its central bank’s foreign reserves.

Russia currently exports nearly five million barrels per day of crude oil and another three million barrels per day of diesel, gasoline and other refined products. China and India have vast refinery industries and are typically interested in crude oil, Birol said.

Natural gas is more difficult for Russia to export. According to the International Energy Agency, Russia has the ability to liquefy and load only one-tenth of its natural gas exports onto ships. Most of the shipments that are liquefied have already been destined for East Asia anyway, with many departing from the southern tip of Sakhalin Island near Japan.

According to Marine Traffic, an Athens-based ship tracking service that monitors ship positions, the Grand Aniva switched from supplying Japan and Taiwan last year to supplying China in the two months following the Russian invasion.

The Grand Aniva is one of the few oil tankers still visiting Russian ports: it is owned by Sovcomflot, a state-owned Russian shipping company that is already subject to Western sanctions.

During its most recent voyage in mid-April, the Grand Aniva went from Sakhalin Island to an LNG unloading port in Beihai on China’s southern coast. Sinopec, a state-owned Chinese refining giant, built the port and then moved it three years ago to PipeChina, a separate state-owned enterprise. Sinopec, PipeChina and Sovcomflot did not respond to requests for comment.

Geopolitics helps make the continued export of Russian energy possible. China has avoided condemning the Russian invasion of Ukraine and has a history of buying oil from Iran and Venezuela despite Western sanctions against those countries.

“The Chinese have found alternative solutions for Iranian oil, for Venezuelan oil,” said Michal Meidan, director of Chinese gas and energy research at the Oxford Institute for Energy Studies. “They will find alternative solutions for Russian oil.”

Russia is already increasing natural gas shipments to China through a recently completed Siberian gas pipeline. But since Russia’s Siberian gas fields are not connected by pipelines to the Russian gas fields that supply Europe, there are severe limits to Russia’s ability to transfer gas sales to China.

However, trade between Russia and China, largely Russian energy exports, increased by nearly 30% in the first three months of this year from the previous year. This increase “fully demonstrates the great resilience and internal dynamism of cooperation between the two countries,” said Le Yucheng, Chinese Deputy Foreign Minister in a statement last month. “No matter how the international situation changes, China will, as always, strengthen strategic coordination with Russia.”

Russia’s market position could improve in the autumn. Much of Russian oil is very heavy and produces extra diesel during refining. Russia exported more than 10 times more diesel than gasoline last year, according to data from the Russian Federal Customs Service.

The world’s largest diesel market is China, with nearly twice as many heavy trucks in operation as the United States. The coronavirus lockdown has paralyzed much of the Chinese fleet in recent days, especially in and around Shanghai.

Diesel demand in China could reverse completely by the autumn. Beijing is adopting its favorite tactic in previous economic slowdowns: huge investments in building more rail lines, roads, bridges and other infrastructure.

All of this construction will require huge fleets of diesel trucks, excavators, pile drivers, bulldozers and other equipment.

You there contributed to the research.

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