BEIJING – Last year, the Grand Aniva, a Russian tanker with four spherical tanks for storing ultra-cold liquefied natural gas, sailed back and forth between a gas field in eastern Russia and warehouses in Japan and Taiwan. But two days after Russia invaded Ukraine, the ship changed course and sailed for China instead.
The trip of the tanker, which is three football fields long, underlined that Russian President Vladimir Putin can still find buyers in Asia for the export of fossil fuels from his country, despite Western sanctions. He must look for buyers as governments put more pressure on his country to try to end its war in Ukraine, including an expected move by the European Union over the next few days to phase out Russian oil imports.
On April 14, Mr Putin called on his country to “gradually shift its exports to the fast-growing markets of the South and East”. Two obvious destinations are China, the world’s largest energy market, and India, the world’s third-largest. (The United States is number 2 in energy consumption.)
But any attempt to divert Russia’s energy exports to Asia from Europe will face major obstacles. Russia will have to offer big concessions to make its oil and coal exports worth the risk and cost to buyers, and will have to begin the long-standing task of building more ports and pipelines to export natural gas.
The diversion of Russian natural gas to Asia from Europe will require the construction of extremely long pipelines or specialized ports such as the one on the Russian island of Sakhalin, where the Grand Aniva sails. Such ports are able to supercool natural gas so that it condenses into a liquid that can then be sent by ship.
Sending oil to Asia would also require shipping. But due to Western financial sanctions over the war in Ukraine, insurers are refusing to cover tankers with Russian cargo. Banks refuse to lend money for the time oil is in transit. Therefore, oil companies in countries such as India have requested very large price discounts to cover additional costs and risks.
Coal exports, which can be loaded onto trucks or trains to China, face the least logistical obstacles. But Russia’s coal exports cost only a tenth of oil exports and a quarter of natural gas exports, according to Russia’s Federal Customs Service. And Western sanctions on the use of dollars for transactions with Russia are reducing demand for Russian coal in China.
“Even private Chinese coal traders today do not want to touch Russian coal for fear of Western sanctions,” said Zhou Xizhou, a longtime Chinese energy specialist who is now with S&P Global.
Despite the obstacles, world energy leaders are betting that Russia can find a way to export at least oil and coal, largely because global demand remains high. The world has been short of energy since the fall, when China ran out of coal and suffered massive power outages.
Natural gas and oil prices, as well as coal, have risen sharply since last year. Preventing Russian energy from reaching world markets could drive them even higher.
“This is actually a potentially more significant energy crisis since the 1970s – it was just oil, it was simpler,” said Daniel Yergin, an energy historian and author of books such as The Prize and The New Map.
Some leaders in the energy industry are calling for policies that do not completely block Russia’s 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 issue 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 in Paris, said by telephone. interview.
Mr Putin is expected to maintain the movement of oil and coal, effectively holding the world’s largest sale.
Russia needs every dollar of export revenue it can get right now. It is moving towards defaulting on its external debt. He lost much of his foreign investment. And Western governments have frozen half of their central bank’s foreign exchange reserves.
Russia currently exports nearly five million barrels a day of crude oil and another three million barrels a day of diesel, gasoline and other refined products. China and India have large refineries and are usually interested in crude oil, Mr Birol said.
Natural gas is more difficult to export to Russia. According to the International Energy Agency, Russia has the capacity to liquefy and load ships with only about a tenth of natural gas exports. Most of the shipments that have been liquefied are already going to East Asia, with most coming from the southern tip of Sakhalin Island, near Japan.
According to Marine Traffic, an Athens-based ship tracking service that tracks the location of ships, Grand Aniva switched from deliveries to Japan and Taiwan last year to deliver to China in the two months since the Russian invasion.
The Russia-Ukraine war and the global economy
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Lack of base metals. The price of palladium, used in car exhaust systems and mobile phones, is rising amid fears that Russia, the world’s largest metal exporter, could be cut off from world markets. The price of nickel, another key Russian export, is also rising.
Financial turmoil. Global banks are preparing for the effects of sanctions designed to limit Russia’s access to foreign capital and limit its ability to process payments in dollars, euros and other currencies that are crucial to trade. Banks are also on the lookout for retaliatory cyber attacks from Russia.
Grand Aniva is one of the few tankers still visiting Russian ports: it is owned by Sovcomflot, a state-owned Russian shipping company that is already subject to Western sanctions.
On its last voyage in mid-April, Grand Aniva traveled from Sakhalin Island to a liquefied natural gas port in Beihai, China’s southern coast. Sinopec, a state-owned Chinese refining giant, built the port and then transferred it three years ago to PipeChina, a separate state-owned enterprise. Sinopec, PipeChina and Sovcomflot did not respond to requests for comment.
Geopolitics is helping to make it possible to continue exporting Russian energy. China avoids condemning Russia’s invasion of Ukraine and has a history of buying oil from Iran and Venezuela despite Western sanctions against those countries.
“The Chinese have found solutions to Iranian oil, to Venezuelan oil,” said Michal Maidan, director of gas research and Chinese energy at the Oxford Institute for Energy Research. “They will find solutions to Russian oil.
Russia is already increasing natural gas supplies to China through a recently completed Siberian pipeline. But because Russia’s Siberian gas fields are not connected to pipelines carrying Russian gas fields to Europe, there are serious limitations on Russia’s ability to redirect gas sales to China.
However, trade between Russia and China, much of Russia’s energy exports, jumped nearly 30 percent in the first three months of this year from a year earlier. The increase “fully demonstrates the great resilience and internal dynamism of co-operation between the two countries,” Le Yucheng, China’s deputy foreign minister, said in a statement last month. “No matter how the international situation changes, China will, as always, strengthen strategic coordination with Russia.
Russia’s position in the market may improve in the fall. Much of Russia’s oil is very heavy, producing extra diesel when refined. Russia exported more than 10 times more diesel than gasoline last year, according to data from Russia’s Federal Customs Service.
The main global diesel market is China, with almost twice as many heavy-duty trucks in operation as the United States. Coronavirus blockades have paralyzed much of China’s fleet in recent days, especially in and around Shanghai.
Demand for diesel in China may be completely reversed by the fall. Beijing is turning to its favorite tactic in previous economic slowdowns: huge investments in more railways, roads, bridges and other infrastructure.
All this construction will require a huge fleet of diesel trucks, excavators, pilots, bulldozers and other equipment.
Li You contributed to the research.
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