China’s Big Gas Bet Raises Questions About Complicity With Russia

Chinese President Xi Jinping’s recent overtures to Ukraine and attempts to frame China as a neutral player and potential arbiter of peace between Russia and Ukraine shake the diplomatic landscape. The People’s Republic of China (PRC) has vehemently denied that Xi was informed in advance about the invasion plans and even asked Putin during his visit to delay the attack until after the 2022 Beijing Winter Olympics. Yet suspicions remain about what the PRC knew and whether it used that knowledge to support Russia’s aims. Such suspicions may be well-founded, given the strategic interests that Eurasia’s two authoritarian titans share . A successful Russian revanchist conquest of Ukraine would be a powerful precedent for Beijing potentially using force against Taiwan.

Chinese President Xi Jinping’s recent overtures to Ukraine and attempts to frame China as a neutral player and potential arbiter of peace between Russia and Ukraine shake the diplomatic landscape. The People’s Republic of China (PRC) has vehemently denied that Xi was informed in advance about the invasion plans and even asked Putin during his visit to delay the attack until after the 2022 Beijing Winter Olympics. Yet suspicions remain about what the PRC knew and whether it used that knowledge to support Russia’s aims. Such suspicions may be well-founded, given the strategic interests that Eurasia’s two authoritarian titans share. A successful Russian revanchist conquest of Ukraine would be a powerful precedent for Beijing potentially using force against Taiwan.

We have uncovered data regarding the PRC’s energy activities that raise questions that support these suspicions. We have reviewed data from more than 600 discrete liquefied natural gas (LNG) purchase transactions worldwide over the past 18 years. They provide a quantifiable set of metrics that inform a more nuanced understanding of PRC interests and actions before and after Russia’s 2022 invasion of Ukraine. Two key themes have emerged, neither of which have been publicly discussed to date.

First, Chinese LNG buyers stood out from every other group of global purchasers in the six months leading up to Russia’s invasion. From Sept. 1, 2021, through the end of February 2022, when Russia invaded Ukraine, almost a dozen PRC entities, including state-owned companies China National Offshore Oil Corp. (CNOOC), Sinopec, and Sinochem, bought more than 91 percent of all global LNG purchased worldwide under term deals (typically spanning four years or longer). These methane molecules came from projects that are either newly online or about to enter service, predominantly in the United States and Qatar.

Once the war started, PRC buyers continued to sign deals, accounting for 57 percent of worldwide term LNG purchases through April 2022 as others began to scramble for supplies. During the seven months from Sept. 1, 2021 to April 1, 2022, Chinese companies contracted for more than 23 million metric tons of LNG per year—more than twice what they had purchased in any prior full calendar year. For perspective, from 2006 (China’s first purchases in the dataset) through 2020, the PRC on average contracted for about 5 million metric tons per year of new LNG supplies annually and averaged only about 15 percent of new LNG procurement worldwide. In no year before 2021 did PRC entities acquire more than 9.1 mmtpa, or 45.7 percent, of total new supplies contracted for globally.

Unusually, Beijing’s LNG buying spree during this six month period was executed through 22 separate contracts signed by 11 different companies, all but one of which was owned by the PRC at either the national or local governmental level. Further, 9 of the 20 PRC entities in our dataset do not appear to have contracted for LNG prior to September 2021, and several of these (for instance, Shenzhen Gas, Sinopec, and SPIC) only contracted for LNG during the fourth quarter of 2021—when PRC buyers virtually monopolized global LNG procurement. Almost every contract during this pre-invasion buying spree was for a small quantity that, by itself, flew under the radar, but which together took most of the available near-term supplies off the market.

Second, this PRC monopsony soaked up near-term LNG supplies. Chinese buyers’ agreements with American, Qatari, and Russian suppliers (90 percent of total volumes contracted during the relevant period) were due to begin delivering gas within one to two years of signing. This contrasted with prior periods, in which PRC buyers would contract with new LNG projects that would not deliver gas for three to five years in most cases. Their shift toward near-term supplies thus raises questions on both the tactical and structural levels.

The context is critical. As the PRC was buying up almost all of the term LNG that would soon be available, Russian state-owned company Gazprom was reducing pipeline gas exports to Europe in 2021 and tightening the gas market. Gazprom, which owned roughly 25 percent of European gas storage capacity, left most of its storage in the EU close to empty for the winter of 2021-22.

When the invasion began in February 2022, Gazprom threatened to, and eventually did, shut off its natural gas supply to Europe. Europe lost access to almost all of the Russian pipeline gas it had been receiving, which at its peak had constituted roughly 40% of European natural gas supplies. Only through dramatic actions, in the form of conservation, fuel switching, and the import of 74 percent of all U.S. LNG exports in the first four months of 2022, was the continent able to stare down Russia’s attempt at energy blackmail. Still, prices for natural gas and electricity spiked, and Europe paid dearly.

This theme is still playing out, and it carries great strategic weight. PRC entities’ lockup of LNG supplies in late 2021 and early 2022 (perhaps with advance warning from officials with inside knowledge that the invasion was likely) absorbed an amount of gas equivalent to about 60 percent of what the Nord Stream 1 pipeline delivered prior to the war. Had European firms had access to this LNG after the invasion, perceptions of gas scarcity and price spikes may have been much reduced, since traders would have had clear visibility into new gas flows due later in 2022 and into 2023, headed into the market with the most acute supply needs given the interruptions to Russian pipeline gas supplies.

Viewed in the light most favorable to China, China bought all the LNG it could when PRC political and corporate leaders anticipated that natural gas and LNG prices for Europe were going to spike, contributing to an even worse supply-demand balance and almost certainly higher prices for Europeans. Yet the brilliant trader theory loses some luster when one considers that sophisticated portfolio LNG traders, including the largest global commodity trading firms and international oil and gas companies, were virtually absent from the September 2021 through February 2022 pre-invasion market window but became a predominant driver of contracting later in 2022.

Another possible explanation, perhaps, is that the PRC buyers were operating under a directive to acquire additional energy supplies ahead of the country’s multiyear COVID lockdowns being lifted. Maybe, but unlikely. After all, the PRC did not lift its zero-COVID policies for another year, and then did so abruptly after widespread protests in November and December 2022—almost certainly an event that was not planned months prior. And there is little subsequent data to suggest an economic surge on the scale that PRC LNG purchases in late 2021 and early 2022 would suggest.

It’s also possible China was racing to comply with its obligation to purchase $50 billion in energy products before the two-year time period under the first part of the U.S.-China trade agreement expired at the end of December 2021. But that would be a very selective decision, as the trade agreement required China to purchase a wide range of U.S. products and undertake a series of legal reforms aimed at protecting U.S. intellectual property rights and other matters, few of which China fulfilled.

Maybe China decided in the late summer of 2021 to support worldwide climate goals and its own commitments at COP26 and switch from coal to natural gas. If China did indeed have an environmental epiphany in late 2021, it reversed course shortly thereafter. New coal-fired power plants and coal mines were approved, and coal use grew by 4.3 percent in 2022 while natural gas consumption declined, according to the PRC Ecology and Environment Ministry’s 2022 China Environment Report. If there was any doubt, it was removed when Xi declared at the Communist Party Congress in October 2022 that energy security was the top priority over climate protection. A sudden environmental conscience thus cannot explain China’s LNG buying spree in the run-up to the invasion.

China has been trying to sell itself abroad as a neutral arbiter over Ukraine, even as its domestic propaganda remains heavily pro-Russian. But if Beijing knew that war was coming, and actively exploited it to Europe’s immediate and long-term strategic detriment by buying up available LNG, it’s hard to see China as anything but an ally of Russia.