Russia Fails To Replace Lost Sales To West With China

As revealed by recent data, Russia’s gas sales to China fail to compensate for lost trade with Europe. Western sanctions imposed on Russia following Vladimir Putin’s invasion of Ukraine resulted in European countries seeking alternative fuel sources. In response, Russia aimed to strengthen trade ties with its allies, particularly China, and explore new markets.

Alexei Miller, the chairman of Gazprom, the state gas giant, had expressed optimism in October 2023, stating that gas supplies to China could reach the levels previously seen in Western Europe. However, a report from the Russian central bank released on Tuesday suggests that supplies to China are far from offsetting the decrease caused by the departure of European buyers.

The report shows that gas deliveries from Russia to China through the Power of Siberia pipeline, which carries natural gas from Yakutia to Primorsky territory, rose by 7 billion cubic meters, reaching 23 billion cubic meters in 2023. This marks an increase of 1.5-fold from the year before. Nonetheless, it also notes that this uptick only partially offsets the decline in gas exports to Europe, which saw a drastic reduction of 38 billion cubic meters, bringing the total down to 30 billion cubic meters.

Gazprom reported a significant decline in gas production in the first half of 2023, with a nearly 25 percent drop to 179.45 billion cubic meters. The decrease was attributed to politically motivated decisions made by countries to abandon importing Russian gas. Overall, Gazprom’s gas production for 2023 reached 404 billion cubic meters, approximately 9 percent lower than the previous year, primarily due to reduced exports to Europe.

Market analyst Grzegorz Drozdz pointed out that Russia has experienced a significant drop in its export volumes, even though it has tried to secure new markets for its raw materials. Since the outbreak of the Ukraine conflict, gas imports from Russia have decreased by 65 percent. In response, mainly Western European nations have boosted their gas imports from Norway and have turned to liquefied natural gas (LNG) from the United States.

Interestingly, gas flow from Russia to Europe persists via the Ukraine Transit pipeline, albeit at a reduced rate of 56 percent, while the Turkstream pipeline has seen a 23 percent increase. Russian Deputy Prime Minister Alexander Novak acknowledged that Europe has shown no interest in purchasing gas from Russia once the gas transit contract with Ukraine expires later this year.

In related news, the Financial Times disclosed that the initiation of the Power of Siberia-2 gas pipeline construction to China planned for this year, has been postponed for additional economic evaluations, as stated by Mongolia. The pipeline, which is expected to stretch over 2,000 miles, is to traverse through Mongolian territory.