Russia is shipping more crude oil and record-high levels of natural gas to China as the new year begins and as Moscow scrambles to replace buyers lost because of U.S.-led efforts to reduce its war funding through sanctions.
The rerouting of oil and gas supplies comes in part as India, the biggest buyer of seaborne Russian crude exports in 2023, has slowed its oil purchases from Moscow amid price disputes and stepped up enforcement of the price cap on Russian oil imposed by the U.S. and allies. Natural gas deliveries are limited as well, following the abrupt halt in deliveries to the European Union and the explosion of its main gas pipeline.
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As a result, China has taken advantage of the lower prices to up its imports of Russian energy supplies, a trend analysts said is likely to continue through early 2024 if oil benchmarks remain below $80 per barrel, and if the two countries can find a compromise on a new gas pipeline slated to link the two countries and make up for some of the lost revenue from Europe.
Refinitiv estimated Chinese imports of Russian oil rose last month to 11.85 million bpd, up from 10.33 million bpd in November. Though China does not report these numbers publicly, the estimates track with a broader uptick in Chinese refining activity.
Russian state-owned gas giant Gazprom announced this week that its piped gas deliveries to China on Wednesday reached a new record high. Though Russia declined to say how much gas was sent, deliveries to China via its Power of Siberia pipeline increased to 22.7 billion cubic meters in 2023 — at least 1.5 times higher than the previous year, when it shipped a 12-month total of 15.4 bcm.
The Power of Siberia pipeline is slated to reach full capacity in 2025 and will be capable of exporting 38 bcm of natural gas to China, Gazprom said.
Russia is in continued talks with China over a second, larger gas pipeline, the Power of Siberia 2, which would run from Russia’s north to Mongolia and carry an even larger export capacity of up to 50 bcm per year.
Russia’s push for the pipeline has gained even more significance as other buyers have sought to cut ties with Moscow amid its war in Ukraine. Reuters reported that Moscow is hoping to double its piped gas deliveries to China to make up for the loss of EU buyers, which fell by a whopping 55% in 2023.
The oil price cap, imposed by Group of Seven nations, is designed to limit Russia’s oil profits by forbidding any coalition countries to provide maritime services on insurance to ship Russian oil unless it is sold at or below $60 per barrel.
But ship tracking data and refining data cast doubts on the efficacy of the cap, noting the lack of enforcement and the emergence of so-called shadow tankers that ferried Russian crude illegally.
For most of 2023, Russia sold its flagship grade Urals crude to India at prices well above the cap. Russian imports to India tripled in the first eight months of 2023 compared to the previous year, at prices at about $80 per barrel.
That changed in the last months of 2023, however. In October, the G7-led price cap coalition announced a number of new enforcement measures aimed at going after price cap violators, including slapping sanctions on entities that continue to ship oil above the capped price.
There are early signs the efforts have worked. In December, India’s Russian oil imports fell to an 11-month low, according to government data. Additionally, it appears that five oil tankers that had idled while carrying oil from Russia to India have now changed course and appear to be heading to China instead, Bloomberg reported.
“China seems to have stepped in to save the idling Sokol cargoes,” Viktor Katona, lead crude analyst at data intelligence provider Kpler, told the outlet.
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Analysts said they expect Chinese oil imports from Russia to stay high through early 2024 if oil prices remain below $80 per barrel. Reuters columnist Clyde Russell said they could even rebound higher this year if prices remain subdued.
“Brent ended last year at $77.04 a barrel and has continued to drift lower in the new year, finishing at $75.89 on Jan. 2,” he said. “This makes it more likely that Chinese refiners will buy more crude and build inventories again.”