China closes in on Japan as top destination for Russian LNG in 2022

SINGAPORE - Japan and China have emerged as the largest buyers of liquefied natural gas (LNG) from Russia so far this year, unmoved by mounting pressure from a coalition of Western powers desperate to choke off the supply of petrodollars to the Kremlin.

Embroiled in a war with Ukraine that has rolled into its ninth month, Russia relies heavily on selling oil and gas as its main source of foreign currency earnings, which are buoyed by healthy sales to Asia in particular, making it resilient to sanctions.

According to the International Energy Agency’s monthly oil market report in September, Moscow’s oil revenues had shrunk to US$15.3 billion (S$21.1 billion), the lowest for 2022. But that is still higher than the monthly average in 2021, which was pegged at around US$14.9 billion.

Data from S&P Global Commodity Insights shows that between January and November this year, Japan purchased 5.96 million tonnes of the super-chilled fuel, a dip of around 10 per cent from 2021. China was not far behind, having imported 5.67 million tonnes to date, nearly 24 per cent higher than in 2021.

Mr Ciaran Roe, global director of LNG at S&P Global Commodity Insights, said China was likely to edge past Japan by the end of 2022.

“Russia-origin LNG has continued to flow around the world in 2022: in fact, Russia-origin LNG will likely be exported in greater volume than last year. However, the flows have become more concentrated, with the largest volumes going to Japan, China, France and Spain so far this year,” he said. 

He said he expects China’s Russia-origin LNG imports to be at least 30 per cent more in 2022 than in 2021. He noted that with Russian LNG continuing to trade below benchmark prices,

it remained an attractive option for buyers

who were comfortable to stomach the associated risks in dealing with Russian trade now.

“In September, a large number of short-term cargoes became available from Russia’s Far East LNG plant, Sakhalin, and it is likely these cargoes ended up in China due to proximity and buying appetite. Due to a diminished pool of potential buyers, these cargoes were being traded at discounts to the LNG benchmark, Platts JKM,” he said.

Mr Roe said the average LNG price for January delivery to North-east Asia has so far been US$27.30 per million British thermal units (mmBtu). This is below the price range seen in 2021 of around US$35 per mmBtu. The monthly average of the S&P Global Platts LNG benchmark for November and December was assessed at US$27 to US$35.

He said that while the main importers of Russian LNG in 2022 were not too dissimilar to those in the previous year, he noted that South Korea, another top energy consumer in the region, had significantly reduced its purchases, with data from S&P showing an overall decline of around 41 per cent.

Another notable highlight was Britain, he said, which has not imported any LNG from Russia since March. Its purchases to date are at 365,211 tonnes, compared with 2.45 million tonnes in 2021.

Industry sources attributed the steep reduction for Britain to national policy mandates to divest reliance on Russian energy.

Mr Toby Copson, global head of trading and advisory at Trident LNG, said: “The UK was one of the chief architects of the sanctioning measures, so it’s understandable they have been staunch in their commitment to not support Russian oil and gas profiteering.”

Dr Adi Imsirovic, a senior research fellow at the Oxford Institute for Energy Studies and former global head of oil at Gazprom M&T in the UK, said: “The UK government (and people) have been the strongest supporters of the Ukrainian fight for survival after the invasion. Even before the sanctions, some dock workers’ unions refused to accept Russian vessels at UK ports.”

Mr Henning Gloystein, director of energy, climate and resources at Eurasia Group, said that while Britain had stopped importing Russian gas, most of Europe continued to do so because there were no restrictions.

“It’s worth pointing out that there are no sanctions in place on Russian natural gas or LNG, so nobody is breaking any rules here. It is an awkward reality,” he said.

“It’s also very convenient because similar to what we’ve seen in the oil sector, Russian LNG has been heavily discounted, so it’s an attractive option amid otherwise sky-high prices for spot cargoes.”

With competition for spot LNG expected to remain fierce and prices expected to remain high, demand for cheaper alternatives such as diesel or fuel oil would start to pick up, said Mr Yaw Yan Chong, director of oil research at Refinitiv, a unit of the London Stock Exchange Group.

The Straits Times understands that traders have been quietly inquiring about storing Russian petroleum products like diesel and fuel oil at commercial storage facilities in Singapore and neighbouring storage locations in Malaysia and Indonesia.

“We have received preliminary inquiries from traders. Most are trying to understand if there are any legal restrictions preventing them from storing Russian oil in Singapore,” said one commercial storage operator, who declined to be named as he was not authorised to speak on behalf of his company. Most of the commercial operators ST contacted declined to comment. 

Dutch multinational Vopak, which operates energy and petrochemical storage facilities here, said: “Vopak is monitoring this tragic situation closely and is fully committed to adhere to relevant sanctions laws and regulations. As governments try to ensure energy security and affordability, Vopak follows applicable government regulations with regard to energy imports from Russia.”

Responding to queries from ST, a Ministry of Trade and Industry spokesman said Singapore has not imposed restrictions on goods that include energy products such as crude oil, diesel, naphtha and LNG coming to Singapore from Russia. “Our current sanctions and restrictions imposed on Russia by Singapore are specific and targeted. They are aimed at constraining Russia’s capacity to conduct war against Ukraine. In particular, Singapore has imposed controls on the exportation from, transhipment in, or transit through Singapore of certain goods, if the destination is or is intended to be Russia (Export Controls),” he said.

“These are specific goods, that is, military goods and some dual-use goods that can be used for offensive cyber operations. Singapore has also imposed financial measures which prohibit financial institutions in Singapore from dealing with the designated Russian banks and the financing of the above-mentioned goods.”