Gulf exporters face Russian rival for Chinese petroleum gas market

China is one of the world’s largest consumers of LPG. (AFP)
Updated 30 August 2019

Gulf exporters face Russian rival for Chinese petroleum gas market

  • Typically high logistics costs have been bypassed by a Russian exporter located close to the Chinese border

MOSCOW: An independent Russian producer has made a foray into China’s market for liquefied petroleum gas (LPG), jostling with Middle Eastern countries for what could be a lucrative foothold, market data showed and traders said.

China is one of the world’s largest importers and consumers of the fuel. Key suppliers to the country are the UAE, Qatar, Kuwait and Saudi Arabia, which jointly account for more than 60 percent of China’s LPG imports.

Russia is one of the top oil exporters to China and is set to launch a gas export pipeline connecting the two countries by the end of this year. Its LPG supplies to China are small at this stage, but Moscow is expanding production.

According to rail statistics, Irkutsk Oil Co, known by the Russian acronym INK, shipped around 2,300 tons of propane and butane mixture by train toward the Far East Gas terminal in northeastern China between Aug. 16 and 26.

Despite past attempts by Sibur and Gazprom Neft, high logistics costs have so far prevented LPG exports to China from occurring regularly. But INK is located much closer to the Russia-China border than those firms, giving it a comparative advantage.

INK started producing LPG, which can be used in cars or to produce electric power and petrochemicals, in 2017 and began exports a year later. Until recently, INK was exporting LPG only to Europe.

It cranked up LPG output tenfold year-on-year in the January-June period to 77,000 tons thanks to the construction of a pipeline to a railway loading facility in Ust-Kut, eastern Siberia.

INK plans to increase LPG output to as much as 1 million tons per year by 2020-2021. INK is controlled by its management, with Goldman Sachs and the European Bank for Reconstruction and Development among minority shareholders.

INK declined to comment.

Traders said Swiss trader Avestra Chemical, a co-owner of the Far East Gas terminal, had been in talks with other Russian companies, including Sibur, Gazprom and Rosneft , about LPG supplies to China.

Igor Berezin, chief executive of Avestra Chemical, confirmed to Reuters that the Far East Gas terminal had received its first LPG cargoes from Russia. He declined to comment further.

The terminal, built last year, is set to boost its annual transhipping capacity to as much as 3 million tons in coming years from around 1.8 million tons currently.

Sibur, Rosneft and Gazprom did not respond to requests for comment.

China’s LPG imports rose 3.4 percent year-on-year in the first half of 2019 to 9.785 million tons, Chinese customs data shows.

IHS Markit, an information provider, expects LPG consumption in northeastern Asia to exceed 110 million tons per year by 2025 from 80 million tons in 2018 thanks to the launch of new processing units in China. 


US trade offensive takes out WTO as global arbiter

Updated 10 December 2019

US trade offensive takes out WTO as global arbiter

  • Two years after starting to block appointments, the US will finally paralyze the WTO’s Appellate Body
  • Two of three members of Appellate Body exit and leave it unable to issue rulings

BRUSSELS: US disruption of the global economic order reaches a major milestone on Tuesday as the World Trade Organization (WTO) loses its ability to intervene in trade wars, threatening the future of the Geneva-based body.
Two years after starting to block appointments, the United States will finally paralyze the WTO’s Appellate Body, which acts as the supreme court for international trade, as two of three members exit and leave it unable to issue rulings.
Major trade disputes, including the US conflict with China and metal tariffs imposed by US President Donald Trump, will not be resolved by the global trade arbiter.
Stephen Vaughn, who served as general counsel to the US Trade Representative during Trump’s first two years, said many disputes would be settled in future by negotiations.
Critics say this means a return to a post-war period of inconsistent settlements, problems the WTO’s creation in 1995 was designed to fix.
The EU ambassador to the WTO told counterparts in Geneva on Monday the Appellate Body’s paralysis risked creating a system of economic relations based on power rather than rules.
The crippling of dispute settlement comes as the WTO also struggles in its other major role of opening markets.
The WTO club of 164 has not produced any international accord since abandoning “Doha Round” negotiations in 2015.
Trade-restrictive measures among the G20 group of largest economies are at historic highs, compounded by Trump’s “America First” agenda and the trade war with China.
Phil Hogan, the European Union’s new trade commissioner, said on Friday the WTO was no longer fit for purpose and in dire need of reforms going beyond just fixing the appeals mechanism.
For developed countries, in particular, the WTO’s rules must change to take account of state-controlled enterprises.
In 2017, Japan brought together the United States and the European Union in a joint bid to set new global rules on state subsidies and forced technology transfers.
The US is also pushing to limit the ability of WTO members to grant themselves developing status, which for example gives them longer to implement WTO agreements.
Such “developing countries” include Singapore and Israel, but China is the clear focus.
US Commerce Secretary Wilbur Ross told Reuters last week the United States wanted to end concessions given to then struggling economies that were no longer appropriate.
“We’ve been spoiling countries for a very, very long time, so naturally they’re pushing back as we try to change things,” he said.
The trouble with WTO reform is that changes require consensus to pass. That includes Chinese backing.
Beijing has published its own reform proposals with a string of grievances against US actions. Reform should resolve crucial issues threatening the WTO’s existence, while preserving the interests of developing countries.
Many observers believe the WTO faces a pivotal moment in mid-2020 when its trade ministers gather in a drive to push through a multinational deal — on cutting fishing subsidies.
“It’s not the WTO that will save the fish. It’s the fish that are going to save the WTO,” said one ambassador.