Russia's 'energy weapon' is harming China too

 

Europe has proved surprisingly resilient, but high global gas prices amid record low temperatures are punishing parts of northern China

Europe has had a bitter winter - but warmer weather and a frantic effort to find new natural gas supplies have limited the economic damage from Moscow's decision to freeze gas exports to the continent. Instead some of the damage is being reflected in a very different gas market and one Russia is relying on for its growth: China.

Part of what is happening is simple bad luck. Unlike Europe, parts of northern China are getting bitterly cold. But high gas prices in China also reflect an uncomfortable reality: Russia's decision to weaponize its power in global gas markets is now creating economic and political problems for Beijing, while China's deepening partnership with Russia has The need for new pipelines to fully capitalize is years away. Furthermore China's energy sector reforms since 2020 – and a major policy push in recent years to use more gas for environmental reasons – have left some Chinese city utilities exposed to rising global prices. One result has been that gas supplies have been cut to some residents, who pay lower regulated prices for gas than industrial customers.

While it is not clear how serious the problem is, a deputy director of China's economic planning agency told reporters on January 13 that "some places and enterprises" had not properly implemented measures to ensure adequate energy supplies and stable prices. did not, even though the supply of natural gas was sufficient from a nationwide perspective. In early January, Chinese investigative media outlet Caixin reported that gas supplies were being cut to several regions in Hebei, the province surrounding Beijing. The newspaper quoted a rural resident as saying that the gas company was cutting off his gas supply from midnight to six in the morning.

It's no surprise that city gas distribution companies—especially those in smaller, rural areas—are feeling the pinch. Local government finances have already been hit by the housing slump, which has reduced revenue from land sales, and by China's "zero COVID" policy, which has forced cities to spend huge sums on testing and quarantining. Have done

China's gas import has also become very expensive. The country's piped gas imports were 57% costlier in December on a metric tonne basis compared to September 2021. Liquefied natural gas import prices were 49% higher, according to data provider CEIC. But the regulated prices utilities pay for resident gas have barely fallen short at all.

Major but incomplete energy sector reforms implemented in 2020 could exacerbate the problem. In 2020, the major long-distance pipeline assets of China National Petroleum Corp—also known as CNPC—and other large state-owned energy companies were transformed into a new entity: China Oil and Gas Pipeline Network Corp, or PipeChina given. The idea was to replicate the US open access gas pipeline network, where gas importers, producers and users could all contract directly—to spur upstream investment and create a true national market.