The European Union’s impending ban on the transshipment of Russian liquefied natural gas (LNG) at its ports could significantly impact winter supplies to China and other Asian markets. This prohibition, part of the EU’s 14th sanctions package against Russia, is scheduled to take effect on March 27, 2024. Analysts warn that this measure directly threatens the trade flows from the Yamal LNG project in northern Russia, which has been a critical supplier of LNG to both Europe and China, the world’s largest LNG importer. A substantial portion of the LNG from the Yamal project is delivered to Europe, but there is also considerable transshipment for onward delivery to Asian countries, particularly to China.
State-owned PetroChina has a long-term supply contract with Yamal LNG, indicating the importance of this energy source for China. However, the new ban may lead to increased LNG remaining in Europe, potentially at the expense of Chinese imports. Analysts note that European market prices are higher, making it more attractive for suppliers to prioritize these shipments. The shipping routes for Yamal LNG are particularly dependent on seasonal conditions, relying on Arctic routes to deliver cargo to Asian markets.
During the summer months, specialized LNG carriers can navigate the Northern Sea Route directly to Asia. However, during winter, these vessels must divert to European ports for necessary transshipments. This situation underscores the concern that the new ban could impede approximately 2.22 million metric tons of Yamal LNG that typically reach China via transshipment. To address potential supply disruptions, Russia may seek alternative non-EU transshipment hubs or utilize complex ship-to-ship transfers in open seas.
Despite these challenges, some analysts believe that China currently has sufficient gas inventories to manage temporary setbacks, thanks to a diverse supplier base and robust domestic reserves. Given these available resources, China could weather delays in Russian LNG shipments without significant impact on its overall energy supply.