Results of the implementation and risk assessment of the Chinese strategy for diversifying natural gas imports

Du Khuei ORCID: 0009-0001-0064-3968 Senior Lecturer; Department of Foreign Languages; Moscow State Institute of International Relations (Odintsovo) 30 Rodnikovaya St., Moscow, 119297, Russia mianyijingcha@mail.ru

Katuntseva Alena Aleksandrovna Lecturer; Department of Foreign Languages; Moscow State Institute of International Relations (Odintsovo) 141402, Russia, Khimki region, Z. St.Kosmodemyanskaya 3, sq. 75 katyntseva.alena@gmail.com

Introduction

Natural gas, as a clean and efficient energy resource, plays a key role in the restructuring of China's energy balance and sustainable development. In recent years, the volume of natural gas consumption in the country has been continuously growing, while domestic production is unable to meet the rapidly growing demand, which leads to a constant increase in gas imports. To reduce dependence on a single source of supplies and transport corridors, as well as minimize supply risks, China is actively promoting a strategy to diversify natural gas imports. By expanding the sources of procurement, increasing import methods and transport routes, the country is striving to build a stable and reliable gas supply system. However, in the process of implementing the import diversification strategy, many complex risk factors arise that require in-depth research and evaluation to ensure the effectiveness of the strategy and guarantee national energy security ^[1].

Key areas of natural gas diversification

Diversification of import sources

China is gradually diversifying its sources of natural gas imports. Currently, the main suppliers include Central Asia, Russia, Australia and Qatar. The Central Asian region, in particular, supplies gas to China through the Central Asian Gas Pipeline, which has become one of the key onshore sources. As of the end of 2022, the volume of supplies via this gas pipeline has exceeded 300 billion cubic meters since its commissioning ^[2].

Russia and China have signed a number of agreements on gas cooperation. Wang Yang's article ^[3] emphasizes that in the context of the changing international energy landscape, Sino-Russian energy cooperation is gaining not only economic, but also strategic importance. The author notes that Russia is becoming an important partner for China not only because of its geographical proximity and favorable supply conditions, but also because of its political reliability amid instability in the Middle East and trade tensions with the United States. The commissioning of the Power of Siberia gas pipeline (eastern route) has strengthened the energy partnership between the two countries. In 2022, the volume of gas imports from Russia amounted to 15.1 billion cubic meters, and supplies are expected to increase as bilateral cooperation deepens ^{[3, 4]}. Negotiations are currently underway on the Power of Siberia-2 project, which can provide additional gas supplies of up to 50 billion cubic meters per year. However, in the same article, Wang Yang ^[3] argues that China continues to pursue a multi-vector course, which confirms the growth of LNG supplies and the conclusion of new contracts with various countries in Asia and the Middle East.

The Central Asian region plays an important role in providing China with gas through the Central Asian Pipeline, which is one of the key onshore sources of supply. As of 2022, the volume of supplies through this gas pipeline has exceeded 300 billion cubic meters since its commissioning. Supplies from Kazakhstan and Uzbekistan are increasing, but Turkmenistan remains the largest supplier of gas to China in this region ^[5].

Australia and Qatar are the main suppliers of liquefied natural gas (LNG). In 2022, China imported 18.59 million tons of LNG from Australia and 8.31 million tons from Qatar, providing significant amounts of resources through shipping. Qatar, which has large natural gas reserves, continues to increase its production capacity. In 2022, Qatar and China signed a long-term LNG supply contract for a period of 27 years.

The Middle East and Africa are also becoming important regions for gas supplies to China. In particular, China is deepening cooperation with Oman and the United Arab Emirates, expanding its supplier portfolio. In addition, investments have begun in gas production projects in Mozambique and Nigeria, which in the future may increase the share of African gas in China's imports ^[6].

Latin America is also considered as a promising region for LNG supplies. Chinese companies are investing in gas projects in Peru, Argentina and Brazil, creating conditions for future natural gas exports to the Asia-Pacific region.

Thus, China is pursuing a multi-vector policy of diversifying its sources of supply, reducing the risks of dependence on individual regions and strengthening the country's energy security.

Diversification of import methods

Natural gas imports to China are carried out primarily through pipeline supplies and LNG purchases. Pipeline gas has the advantages of a large transportation volume and relatively low cost, which makes it ideal for stable long-range supplies. Key projects such as the Central Asian Gas Pipeline and the Power of Siberia gas pipeline (Eastern route) provide China with reliable onshore sources. In 2022, the volume of pipeline gas imports amounted to 521 billion cubic meters ^{[7, 8]}. The Power of Siberia-2 project will also be an opportunity to expand pipeline routes by connecting gas fields in Russia with the western provinces of China.

Imports of liquefied natural gas (LNG), in turn, are flexible and can be purchased globally, which allows them to respond to seasonal and regional fluctuations in demand. LNG imports to China have been growing rapidly in recent years: in 2022, their volume reached 63.44 million tons, increasing their share in the total structure of gas imports. At the same time, the country is actively investing in the construction of new LNG receiving channels, which also allows expanding import opportunities. Thus, by the end of 2023, 28 LNG terminals were put into operation in China, the combined capacity of which helped to increase the total volume of supplies by 12.6% compared to 2022 ^[9]. As of January 2025, China has 33 regasification terminals with a total capacity of about 130 million tons of LNG per year.
In November 2023, Sinopec commissioned the world's largest LNG storage tank with a capacity of 270,000 cubic meters at the Qingdao terminal. This increased the storage capacity by 165 million cubic meters. At the same time, the construction of the second stage of the terminal in Tianjin was completed, which includes three reservoirs of 220,000 cubic meters each.

In addition to traditional pipeline and offshore supplies, China is exploring new methods of gas import, including the use of low-tonnage LNG and coal gasification. Low-tonnage LNG is an effective solution for supplying remote regions where pipelines cannot be carried out. In 2022, low-tonnage LNG accounted for 5% of total gas imports. Coal gasification, in turn, is considered as a promising area allowing China to reduce import dependence and increase the production of synthetic natural gas in the country.

At the same time, China is actively developing new formats of gas trade, including futures and spot transactions, in order to increase market transparency and responsiveness to changes in demand. In 2021, the Shanghai Oil and Gas Exchange launched LNG futures contracts, which allowed Chinese companies to more effectively manage the risks of price fluctuations and ensure supply stability. An analysis of data from the Shanghai Oil and Gas Exchange showed that a 10% increase in the share of spot purchases reduces sensitivity to price fluctuations by 3.2% (P<0.05), and when hedging 35% of imports with futures, the probability of exceeding costs decreases by 42% ^[10].

Thus, China is not only increasing the number of natural gas suppliers, but also improving its delivery and purchase methods, which contributes to improving the country's energy security and reducing dependence on individual markets.

Diversification of transport corridors

To ensure safe and stable transportation of natural gas, China is actively developing many transport corridors (both onshore and offshore). This reduces the risks associated with dependence on a single route or source of supplies, increasing flexibility and responsiveness in the event of unforeseen circumstances.

Onshore corridors: In addition to the Central Asian Gas Pipeline and the Power of Siberia gas pipeline (eastern route), other pipeline projects are being implemented that form a developed onshore pipeline network. For example:

· The Central Asian gas pipeline. The design capacity of this gas pipeline is 55 billion cubic meters per year. This is one of the most important projects to ensure the supply of natural gas from Central Asia. The gas pipeline connects Turkmenistan, Uzbekistan and Kazakhstan with China. The volume of supplies via this route in 2022 amounted to 45 billion cubic meters of gas.

· "The Power of Siberia". The planned final capacity of the Power of Siberia gas pipeline will reach 38 billion cubic meters annually. It is planned to double the capacity, which will allow delivering up to 60 billion cubic meters of gas annually, thereby significantly increasing Russia's share in the Chinese gas balance.

Sea routes: China has numerous LNG receiving terminals located in coastal regions that ensure the distribution of liquefied natural gas throughout the country. According to data at the end of 2022, the total receiving capacity of the existing LNG terminals amounted to 91 million tons per year. In the same year, 2022, the volume of imported LNG through these terminals amounted to 63.44 million tons.

Innovative directions: China is also exploring new transport corridors, including the use of the Northern Sea Route, to improve the reliability and sustainability of supplies.

Analysis of quantitative indicators of changes in the supply chain

To assess the effectiveness of the diversification strategy, the article presents the Import Concentration Index (HHI) and the Channel Vulnerability Index (CVI). Based on data from the Customs Administration and the State Administration for Energy for 2015-2022, calculations were carried out:

• The HHI of import sources decreased from 0.42 (high concentration) in 2015 to 0.28 (moderate diversification) in 2022, while Russia's share increased from 12% to 22%, and the number of LNG supplier countries increased from 8 to 17;
• The gap in the cost of transportation of pipeline gas and LNG decreased from 1:2.1 (2015) to 1:1.7 (2022), reflecting the increased stability of the channels due to infrastructure modernization ^[11].

Results of the implementation of the strategy of diversification of natural gas imports in China

Improving the stability of gas supply

The implementation of the strategy of diversification of sources, methods and transport corridors of natural gas imports has significantly increased the stability of gas supply in China. This is reflected not only in reducing dependence on a single source of supply, but also in providing flexibility in responding to supply disruptions. This strategy gives China the opportunity to quickly compensate for the gas shortage through alternative channels, which makes the system more resilient to external risks.

By diversifying the sources, methods, and transport corridors of imports, China has reduced its dependence on a single source of supplies and routes, significantly increasing the sustainability of gas supply. In case of disruptions in certain regions or transport routes, the country will promptly compensate for the deficit through alternative channels. For example, with short-term fluctuations in supplies from Central Asia, China increases LNG imports or redistributes volumes from other sources. Statistics show that despite local fluctuations in some years, the total volume of gas imports is steadily growing. For the period 2018-2022, the average annual growth rate was 6% ^[11].

Strengthening international energy cooperation

The diversification strategy has a significant impact on strengthening China's international energy cooperation. The active expansion of supply sources, as well as the conclusion of new long-term contracts, contributes to the development of sustainable partnerships with various countries in different regions. China has become an important player in the global gas market, establishing relationships not only with traditional suppliers, but also with new countries such as Mozambique and Tanzania, expanding the horizons of its energy cooperation. Joint gas projects not only ensure stable supplies, but also contribute to:

· Technological exchange (for example, innovations in the field of gas liquefaction).

· Investment cooperation (infrastructure construction, field development).

A striking example is Sino—Russian projects such as the Power of Siberia gas pipeline, which have attracted investments of over 100 billion yuan and created tens of thousands of jobs in related industries.

Stimulating the restructuring of the energy balance

The diversification of gas imports has accelerated China's transition to clean energy. The growing share of gas in energy consumption ^[11]:

· 2012: 5.3%.

· 2022: 9.6%.

Increasing gas in energy consumption helps to reduce dependence on coal, which, in turn, helps to reduce emissions of pollutants (for example, SO₂, noₓ). This growth is particularly significant in the context of combating climate change and China's commitment to achieving carbon neutrality goals. Increasing the share of gas in the country's energy mix helps to reduce emissions of sulfur dioxide and nitrogen oxides, reducing atmospheric pollution and improving the quality of life of the country's citizens.

Thus, the diversification of natural gas supplies to China contributes not only to the country's energy security, but also supports China's global environmental goals. The Strategy supports programs to achieve sustainable development, improve energy efficiency, and reduce carbon emissions.

Empirical analysis of the synergy of futures and spot transactions

In recent years, China has significantly strengthened its position in the LNG market through the active use of futures and spot transactions. This made it possible to increase the flexibility of supplies and reduce the risks associated with price fluctuations.

Zhao Xu and Zhang Shuai ^[12], in their empirical study based on the VAR model, showed a high sensitivity of natural gas imports to fluctuations in international prices. Time series analysis shows that both short-term shocks (such as sanctions or military conflicts) and long-term trends related to global energy price increases have a significant impact. This explains why China is actively investing in the development of its own gas transportation infrastructure, the conclusion of long-term contracts and innovative risk hedging technologies.

Based on data from the Shanghai Oil and Gas Exchange for 2019-2023, the following conclusions were drawn ^[12]:

1. A 10% increase in the share of spot purchases reduces sensitivity to price fluctuations by 3.2% (P<0,05).
2. When hedging 35% of imports with futures, the probability of exceeding costs is reduced by 42%. Example: During the gas price spike in Europe in 2021, CNOOC avoided losses of $800 million by fixing prices for Australian LNG through futures in advance.

Risk assessment of China's natural gas import diversification strategy

Geopolitical risks. One of the main risks China faces in implementing its strategy of diversifying natural gas imports is that the main sources of gas imports are concentrated in regions with unstable political conditions, such as Central Asia and the Middle East. Conflicts, terrorist threats, and changing political regimes in these zones can affect supply stability and pricing ^[13]. For example:

· Tensions in the Middle East periodically lead to the stoppage of production and transportation of hydrocarbons.

· Cooperation with Iran in the gas sector is complicated by international sanctions, creating long-term risks even with current import volumes.

Economic risks. The diversification of gas imports also involves a number of economic risks, especially in the context of fluctuations in global energy prices. In the context of global energy instability, changes in gas supply and demand can lead to significant price fluctuations, which directly affects the cost of gas imports for China. In 2021, a sharp increase in gas prices in Europe led to an increase in the cost of LNG, which also affected the Chinese market.

The risks of currency fluctuations can also have an impact on the price of gas, as China, importing gas, enters into contracts denominated in US dollars or euros. Fluctuations in exchange rates may lead to an increase or decrease in the cost of gas for Chinese consumers. For example, the strengthening of the dollar in 2022 led to an increase in the cost of gas imports in China, despite the long-term contracts concluded.

The volatility of gas prices due to demand, geopolitics and macroeconomics directly affects the Chinese market. Examples:

· In 2021, the average price of LNG imports in China increased by 150% due to the recovery in demand and extreme weather conditions.

· Increased competition for resources (for example, between the EU and Asia) complicates China's access to new deposits.

Risks related to infrastructure and technological issues. An important aspect is the risk associated with infrastructure and technology. China is actively developing the infrastructure for receiving liquefied natural gas, but the construction of terminals, gas pipelines and the expansion of existing capacities require significant investments and time. Long-term projects such as the Power of Siberia-2 gas pipeline may face delays due to financing, construction, or technical difficulties. Logistics and gas transportation issues remain important, as the construction of new terminals or main gas pipelines to remote regions may be delayed due to difficult natural conditions, environmental requirements, or problems with the local population.

Technical risks are also associated with possible accidents or equipment malfunctions, which can lead to a decrease in supply volumes and affect the country's economy. China is actively investing in advanced gas liquefaction and transportation technologies, but new technological solutions are always fraught with uncertainty and possible disruptions.

Risks related to climate change and environmental factors. Climate change can have a serious impact on the diversification of natural gas supplies, especially in terms of risky weather conditions and disasters. Hurricanes, floods, snow storms and other natural disasters can affect the operation of LNG terminals and pipelines. For example, in 2020, a severe hurricane in the Gulf of Mexico affected the operation of LNG terminals in the United States, which disrupted supplies to China. Such risks can be taken into account when planning new supplies in order to reduce dependence on vulnerable regions.

Risks associated with market competition and contract negotiations. Competition in the natural gas market also poses an important risk for China. As the share of LNG imports from various sources increases, competition for supplies arises with other countries such as Japan, South Korea, India, and European countries. China, as the largest importer of LNG, may face the need for tough negotiations on prices, as well as the risk of supply shortages in the event of a shortage of global gas volumes.

Trade wars and trade barriers between states can also affect the cost and volume of supplies. For example, the introduction of new tariffs on gas from the United States or Canada may make their supplies less profitable for China, which will increase the price of gas and create additional risks to supply stability.

The risks associated with the global energy transformation. In recent decades, there has been a growing interest in switching to renewable energy sources and reducing dependence on hydrocarbons. Such trends may affect future volumes of natural gas demand. China is actively implementing green technologies and setting goals to reduce carbon dioxide emissions, which can reduce long-term dependence on gas. In response, China may have to adjust its supply diversification strategy and look for alternatives to gas supplies, for example, to develop imports of hydrogen or other clean energy sources.

Transportation risks. There are also risks directly related to the process of delivering natural gas to the country.

1. Sea transportation:

o Pirate attacks in the Gulf of Aden and the South China Sea (3-5 incidents involving LNG tankers annually).

o Climate threats (typhoons, storms).

2. Onshore pipelines:

o Deterioration of infrastructure in Central Asia (requires $2-3 billion for modernization).

o Earthquake risks in seismically active zones.

Risk management strategies

1. Diversification of supply sources

One of the key elements of the risk management strategy is the diversification of natural gas supplies. The strategy that China is currently implementing. This makes it possible to reduce dependence on a single supplier and minimize the risks associated with political or economic instability in the supplier countries. China is actively developing new gas routes and expanding cooperation with various countries.

For example, as part of China's strategy to reduce dependence on imports through one corridor, the country is investing in the construction of new gas pipelines, such as the Power of Siberia-2, and expanding LNG receiving capacity through terminals on the east and south coasts. China is also increasing the number of short-term contracts with LNG suppliers, which allows for more flexibility in responding to changes in prices and demand.

2. Long-term contracts and fixed prices

To ensure supply stability, China actively enters into long-term contracts with suppliers, which allows it to fix the price of natural gas and ensure reliable supplies. Such contracts with major suppliers, such as Gazprom and Qatar (for LNG), reduce the risks of price volatility on world markets and ensure a stable flow of gas.

Long-term agreements also include insurance mechanisms, such as obligations to compensate for losses in the event of supply cuts, which helps minimize the risks associated with political instability in the supplier countries.

3. The use of flexible pricing mechanisms.

China actively applies flexible pricing mechanisms to manage economic risks. Instead of fixing the price of gas for long-term periods, Chinese companies are increasingly entering into contracts with elements of flexibility, where prices are linked to indices in commodity markets (for example, in the oil or coal market). Such contracts allow us to flexibly respond to price fluctuations and optimize natural gas costs depending on the current economic situation.

4. Diversification of transport routes and terminals.

To manage infrastructure-related risks, China is actively developing new LNG terminals and gas pipelines, improving supply logistics. The diversification of transport routes makes it possible to reduce dependence on a single route and minimize the risks associated with possible technical failures or natural disasters.

For example, the creation of new LNG terminals, as well as the development of main gas pipelines through Central Asia and Siberia, helps to ensure uninterrupted gas supplies, despite possible disruptions in one of the supply corridors.

5. The strategy of switching to alternative energy sources.

To reduce environmental risks and increase the sustainability of the energy system, China is actively developing renewable energy sources such as solar, wind and hydroelectric power plants. As part of the implementation of the national strategy to combat climate change, China sets ambitious goals to reduce its demand for hydrocarbons. This reduces the overall level of dependence on natural gas, which contributes to the diversification of energy sources in the country and reduces the impact of external economic and environmental risks.

6. Investing in technology and innovation.

An equally important aspect of modern gas imports is technological. Chen Lu and co-authors ^[14] consider blockchain-based innovations in cross-border natural gas transactions. The article describes models to increase transparency, reliability and efficiency of supplies. According to the authors, the introduction of blockchain technologies in logistics and calculations may become the standard in the energy sector in the future, especially in relations between major players such as China and Russia. Such technological solutions are especially relevant in the context of sanctions pressure and the need to minimize financial and legal risks.

China is actively investing in new technologies aimed at improving the efficiency of natural gas production and transportation. In particular, in the field of natural gas liquefaction (LNG) and its long-range storage. The development of new methods of gas storage and transportation will help reduce the risks associated with economic and environmental problems in traditional methods of gas supply.

In addition, China is actively developing technologies to increase long-term supply stability by improving the stability of gas pipelines and increasing protection against natural disasters and accidents.

7. Reserve formation strategy.

To reduce the risks of disruptions in natural gas supplies, China is also actively creating strategic reserve reserves. This makes it possible to meet the needs of the country in the event of a sudden reduction in supplies or an increase in demand. Such measures include not only the construction of large backup gas storage facilities, but also the development of flexible import mechanisms that will allow for the rapid redirection of supplies in the event of a crisis.

Gas reserves help ensure the smooth operation of key sectors of China's economy, such as energy, industry, and transportation, and prevent energy shortages in critical situations.

8. Monitoring and adaptation of the strategy.

A key element of the risk management strategy is the constant monitoring of the situation on the international energy markets and the rapid adaptation of the strategy in response to changing conditions. This requires the creation of a powerful analytical infrastructure that can monitor political, economic and environmental changes in the supplier countries and quickly adapt the Chinese import strategy.

China is also actively using big data analysis and artificial intelligence tools to predict risks and prepare in advance for possible market changes. This approach helps to increase the flexibility and adaptability of the country's energy policy.

Digital doppelgangers for transportation monitoring

It is proposed to create a "Digital dual gas Supply Chain System" integrating data from Beidou satellite navigation, pipeline voltage sensors and AIS tracking of LNG tankers ^[14]. This allows you to:

• Reduce the response time to leaks in Central Asian pipelines from 2 hours to 15 minutes.
• Increase the accuracy of forecasting pirate attacks in the South China Sea by up to 89%. The technology has been tested at the LNG terminal in Zhuhai, increasing the processing efficiency by 18%.

Conclusion

The implementation of the natural gas import diversification strategy has become an important step towards ensuring China's energy security and sustainable economic development. The strategy has also demonstrated significant results: the stability of gas supply has been improved, international energy cooperation has been strengthened, work is underway to respond to various risks, which effectively compensates for possible supply disruptions, and the restructuring of the domestic energy balance has been accelerated. However, risks associated with geopolitical instability, market fluctuations and vulnerability of transport systems remain in the process of implementing the strategy.

To further improve the strategy and guarantee national energy security, it is necessary:

1. Strengthen the prevention of geopolitical risks through diplomatic dialogue and the diversification of partners.

2. Optimize market risk management through hedging and price dynamics monitoring mechanisms.

3. Improve the reliability of the transport infrastructure by upgrading pipelines, LNG terminals and developing alternative routes.

The systematic strengthening of diplomatic dialogue, increased hedging of market risks and increased reliability of transport corridors play and will continue to play a key role in further improving the strategy, and the introduction of innovative technologies (digitalization, intelligent monitoring systems) will be an important factor in improving the efficiency and security of gas supply.

Through continuous improvement of the strategy and integrated risk management, China will be able to create a sustainable, reliable and environmentally friendly gas supply system, which will become the basis for the sustainable development of not only the country's economy, but also society as a whole.