China props up Russian LNG, putting U.S. energy sanctions to the test

China’s reliance on Russian LNG rises
Energy ties deepen under Western sanctions
Market bloc formation narrows scope for control

Russian volumes are rapidly increasing in China’s liquefied natural gas (LNG) import market, reshaping supplier rankings. Backed by deep discounts and new logistics routes, Russia has climbed to second place, while China has continued to absorb Russian LNG despite Western sanctions, accelerating energy bloc formation. With Arctic LNG projects and new transport corridors entering the picture, interpretations of how power is being redistributed in the global energy market are also shifting.

China’s energy demand underpins Russian exports

According to China’s General Administration of Customs on the 24th, China imported 1.6 million tons of Russian LNG last month, a 142.6% surge from a year earlier. That volume accounted for 23.5% of China’s total LNG imports, more than doubling Russia’s market share from 11% last year. By contrast, Australia—long China’s top supplier—saw shipments fall 33.6% year over year, with its share plunging from 36% to 21.1%. As a result, Russia overtook Australia to become China’s second-largest LNG supplier after the Middle East.

Pricing and logistics shifts worked in tandem to drive the increase. In November, Russia offered the lowest LNG prices among China’s 12 suppliers, averaging about $9.85 per million BTU—roughly 10% below the market average. The South China Morning Post noted that Russia has been supplying LNG at discounts of about 10% to 40% to reflect transaction risks stemming from Western sanctions, with price competitiveness directly fueling higher import volumes into China.

On the supply side, production from the sanction-hit Arctic LNG 2 project has emerged as a key source. China began importing LNG from the project via the Beihai terminal in August, with Russian volumes starting to register meaningfully in China’s statistics from September. As exports to Europe fell sharply, Russia redirected shipments toward China, Asia’s largest gas market.

Whether the current pace can be sustained remains uncertain. Icebreaking Arc7-class LNG carriers capable of Arctic routes are limited, and harsher winter ice could curb exports. Indeed, production at Arctic LNG 2 reportedly fell to about half its prior month’s level after November due to logistical constraints. How effectively Russia coordinates with Chinese firms will be a decisive factor for next year’s supply.

Effectively a “regulatory gap”

Markets have focused on China’s steady expansion of Russian LNG imports despite U.S. and Western sanctions. Bloomberg vessel-tracking data show at least 11 voyages from Arctic LNG 2 to China since August. Multiple ships—including the Iris—loaded at Russian eastern floating storage facilities and sailed to China, even though both the facilities and vessels are subject to U.S. sanctions. The operations proceeded without apparent barriers.

The expansion is not confined to a single project. Cargoes from the Portovaya LNG plant—effectively idle after U.S. sanctions—were officially shipped to China. According to shipping data from the London Stock Exchange Group, the Russian-flagged LNG carrier Valera transported a cargo loaded earlier this month at the Baltic Sea Portovaya facility to China’s Beihai LNG terminal. Portovaya LNG, which began operations in September 2022, was added to U.S. sanctions lists in February, effectively halting exports at the time.

These developments show China has become the primary destination for Russian LNG after sanctions. Blacklisted vessels delivered large volumes to China using floating storage, with some cargoes transferred offshore near Malaysia. Even so, while Washington has sanctioned state energy firms such as Rosneft and Lukoil, it has refrained from imposing additional measures directly targeting LNG. Bloomberg described this as a “regulatory gap,” helping explain why physical trade flows have continued under sustained sanctions.

Shifting energy influence

As energy bloc formation centered on China and Russia accelerates, perceptions are changing over how effectively U.S.-led sanctions can control physical trade. Even as the West applies pressure through financial, insurance, and shipping restrictions, large LNG volumes continue to flow to China, the world’s largest market. The pattern underscores how the irreplaceability of physical energy trade—and the choices of demand centers—can determine sanction outcomes more than their nominal severity.

The shift is even clearer in expanding land- and sea-based energy infrastructure between the two countries. Through the Power of Siberia 2 pipeline project, Russia and China are building capacity to supply up to 50 billion cubic meters of gas annually to China via Mongolia into Xinjiang. Once completed, China’s reliance on Russian gas is expected to rise further. Compared with seaborne LNG, overland supply chains face lower sanctions and transport risks, narrowing Western leverage.

Maritime transport also presents new variables. Multiple cases of Arctic LNG 2 carriers heading to China’s Beihai terminal suggest the Northern Sea Route could emerge as a new logistics axis. The route shortens distances compared with passages via the Suez Canal or the Strait of Malacca, making it a cost-efficient alternative. Maritime outlet gCaptain observed that the recent surge in Russian LNG carrier movements signals that some project uncertainties between the two countries have been partially resolved.

As these dynamics take hold, sanctions efficacy appears to weaken further. Genevieve Donnellon-May of Oxford Global Society said that large-scale Chinese purchases of Russian gas would shift global energy influence from maritime routes to continental networks, potentially challenging the way the U.S. has projected energy influence through LNG exports. Ultimately, how far U.S. financial sanctions or tariffs can constrain physical energy trade will hinge on the cohesion within the demand–supply blocs formed by importing and exporting countries.