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Slowing expansion in China has reduced the global costs of Russia’s power and wealth, but Beijing has also increased its purchases of Russian fossil fuels.
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By Keith Bradsher
Beijing reports.
Just 12 months ago, China’s economy was developing too fast for its energy sector to remain active. Power outages have clouded giant factory districts. Workplace buildings were evacuated minutes before elevators lost strength. Municipal water systems stopped pumping due to lack of electricity. .
Today, China faces the opposite. Growth has slowed so much that tens of millions of young people are unemployed and businesses are on the verge of bankruptcy.
And as the economy declines, China imports less energy: nearly two million barrels of oil per day less than expected in August and one-sixth less herbal fuel than a year earlier.
The sharp drop in demand from China, the world’s second-largest economy, is helping to curb price growth through Russia’s invasion of Ukraine. as an energy exporter.
The latest resolution from Ukraine’s allies came Wednesday. The European Union, which is initiating an embargo on Russian oil this winter, has agreed on a plan to limit the costs Russia can charge for oil it sells to non-European Union countries. European boats or insurance.
But even as China reduces its total energy imports, it has increased its purchases of fossil fuels from neighboring Russia. Chinese oil refineries and fuel suppliers have bought fuel at greatly reduced costs, while Moscow has less leverage to negotiate.
China’s role as Russia’s friend and the world’s largest importer of crude oil, and the largest momentary importer of herbal fuel after Europe, causes the West to isolate Russia.
“The friendship between China and Russia is that, in the case of oil and gas, there is a geopolitical challenge to the West,” said Philip Andrews-Speed, a Chinese energy specialist at the National University of Singapore.
Here’s what happens next.
On Wednesday, OPEC Plus, the organization of oil producers led by Russia and Saudi Arabia, said it would cut output by two million barrels per day, a move opposed by the Biden administration. in China.
Moreover, if the Chinese economy’s energy demand recovers in the coming months, China’s construction and OPEC Plus cuts may simply push the limits of the global energy source and make it even harder for the European Union to restrict value building.
China’s energy consumption began to decline in late March, Dong Wancheng, deputy director of plan making at the National Energy Administration, said in August. Maximum vital centers of economic activity.
The government has severely limited truck traffic in or near Shanghai, cutting diesel fuel consumption. Roads were closed, cutting fuel consumption for motorists. Factories ran out of parts to assemble and reduced operations or shut down, cutting electricity consumption.
“We are crazy in the oil market because China’s zero covid policy has suppressed demand,” said Alex Turnbull, a commodities analyst at Keshik Capital, a Singapore-based investment fund.
But China’s economic unrest this year has been limited to measures to deal with the coronavirus pandemic.
A housing crisis slowed apartment construction. This has hurt the energy-intensive metallurgical and cement sectors.
Factories, a vital category of electricity consumption, are also reducing operations or ending in China. Many Western families are paying less attention to the pandemic and buying fewer Chinese-made devices and furniture for their homes. Instead, they spend more money on travel, dining meals and other services.
China’s oil and fuel imports fell in August, the most recent month available, according to data from China’s General Administration of Customs. China imported 9. 4% fewer barrels of crude than a year earlier, and imports of subtle products such as diesel fell 35. 4%.
For imports of herbal fuel, tonnage decreased month from January to August this year compared to the same time last year, registering a decrease of 15. 2% in August.
China’s dwindling desires for herbal fuel have directly helped Europe in at least one way. China’s state-controlled corporations have long-term contracts for normal ocean shipments of cheap liquefied herbal fuel from countries like Qatar. But Chinese corporations have recently resold many of those shipments to Europe upon delivery, said Yan Qin, China energy analyst for Refinitiv, a London-based knowledge firm.
With China’s oil imports shrinking and broader symptoms of global economic weakness, the effect on energy costs has been significant. Global oil costs have fallen since peaking in early June.
Weak demand from China helped push the value of Brent crude, the foreign benchmark, below $85 a barrel in recent weeks, before bouncing above $90 this week when OPEC Plus is ready to act.
If Chinese intake had remained at levels expected in the past, “we would at least have stayed at the June highs, so we would have stayed at $120 or $125” per barrel, said Saad Rahim, lead economist at Geneva-based Trafigura Group. . Commodity giant that is one of the largest oil investors in the world.
It is unclear that China’s oil and herbal fuel will remain weak in the coming months.
It is possible that the government will simply ease Covid controls after a Communist Party congress that begins on October 16. China is starting to spend more on road structures and other infrastructure, requiring an abundant amount of diesel for excavators and trucks.
Lin Boqiang, dean of Xiamen University’s China Institute of Energy Policy Studies, said that with the recent drop in oil prices, Chinese corporations are already willing to take on the monetary threat of buying giant amounts of crude oil to refine into gasoline, diesel, jet fuel and other materials.
The important thing for China now is the extent to which it depends on Russia for energy.
Russia and Saudi Arabia were China’s most sensitive oil suppliers in the first seven months of 2022, each supplying one-sixth of China’s oil imports, according to research by the Peterson Institute for International Economics. gas.
China leaned toward Russia in the Ukraine war, echoing Russia’s disinformation campaigns without visibly undermining Western sanctions. But China has long tried not to rely too heavily on a single energy supplier and has noticed Europe rushing after Russia turned off taps for deliveries of herbal fuel.
Vladimir V. Putin, the Russian president, called for moving Russian exports from Europe to Asia. A week before a summit on Sept. 15, Putin said the main points for a new pipeline that would carry Russian herbal fuel through western Siberia had been agreed. and Mongolia to China.
But when Putin, Mongolian President Ukhnaagiin Khurelsukh, and Xi Jinping, the Chinese leader, met a week later, the pipeline deal was not announced and no deal has been publicly revealed since.
Gazprom, the Russian energy giant, then cut off flows of herbal fuel to China on another pipeline in eastern Siberia for more than a week, saying the pipeline needed maintenance. that the pipe needed repairs.
“China deserves to avoid a scenario where Russia becomes its main source of fossil fuel imports,” said Kevin Tu, an energy representative in Beijing and former head of China’s program at the International Energy Agency in Paris. This could have a significant impact on China’s energy security. “
Alan Rappeport contributed to Washington. Li You contributed to the research.
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