China is benefitting from LNG sales to Europe as some traders resell non-Russian cargoes at high prices while restocking with cheap Russian fuel

• Some traders in China are reselling non-Russian LNG cargoes to Europe at high prices.
• They then restock with Russian LNG bought at steep discounts amid sanctions and boycotts.

China has become an unlikely supplier of natural gas to energy-strapped Europe, which is scrambling to load up on the fuel ahead of winter after Russia slowed supplies to the region.

The unusual development comes as China snaps up cheap liquefied natural gas, or LNG, from Russia amid boycotts and sanctions elsewhere over the invasion of Ukraine. China managed to get a 50% discount on some LNG supply from the Sakhalin 2 export plant at the far east end of Russia, Bloomberg reported last week.

With cheap Russian LNG cargoes secured, some Chinese traders are reselling cargoes from other sources at current high prices. S&P assessed LNG prices delivered to northwest Europe at $47.3 per one million British Thermal Units on September 8 — up around 65% from before Russia's invasion of Ukraine.

Depending on how much the non-Russian cargoes were acquired for earlier, the Chinese traders could be profiting off the resale. Due to the high-priced environment, Russia may also be profiting from the sales even though it's selling supplies at steep discounts.

"It appears China is happy to take Russian LNG cargoes at discounts, swapping out alternative supply that can then be directed to Europe at higher prices," Saul Kavonic, a Credit Suisse energy analyst, told Bloomberg.

In August, China's LNG imports from Russia hit a high of about 611,000 metric tons — an almost two-year high, according to an analysis from S&P Global last week based on shipping data.

Meanwhile, some traders in China are also reselling a surplus of LNG to Europe as demand has fallen due to an economic slowdown in the world's second-largest economy, the Nikkei reported last month. That has in turn boosted Europe's natural-gas imports by 60% on-year in the first half of 2022.

China — the world's largest importer of LNG — has not condemned Russia's war in Ukraine or imposed sanctions against President Vladimir Putin's regime.