Europe will be aided indirectly by Beijing’s energy strategy. A post-Covid economic recovery will increase the nation’s appetite for liquefied natural gas, which Europeans covet after forgoing supplies from Moscow in response to Russia’s invasion of Ukraine. However, Beijing’s efforts to increase pipeline imports, increase coal use, and increase domestic gas production should restrain the rise in Chinese demand for the liquid fuel in 2023. This might help Europe, which is suffering from a gas shortage.
The People’s Republic took the top spot in the global LNG market in 2021. However, the following year, when lockdowns reduced economic activity, its purchases decreased by 20% to 64 million tonnes, or 88 billion cubic meters (bcm) in gasified form. Soaring gas prices in Europe meanwhile prompted Chinese traders to redirect U.S. cargos secured through cheaper long-term contracts to the war-hit continent for a profit, a trend that may continue. According to Kpler data, the European Union imported a record 131 bcm of LNG last year, which is 60% more than in 2021.
After Beijing abruptly ended its zero-Covid policy in December, China’s economic outlook has improved. Even so, the weakening of exports and the decline in real estate indicate that the recovery will be less robust than when the Asian nation first loosened Covid restrictions in 2021. Top industry body China Electricity Council estimates power consumption, a key gauge of economic activity, will grow just 6% in 2023 against 10.3% in 2021. Because of this, data provider OilChem China predicts that Chinese LNG imports will only increase by 7% this year to 94 bcm, which is 14% below their 2021 peak.
There are more reasons to believe China’s reopening will not exacerbate Europe’s gas scramble. Beijing has heavily refocused on coal, which makes up about 60% of all energy consumption, after being hit by power shortages in 2021. China’s coal production increased by 9% in 2017 to a record 4.5 billion tonnes, and it is anticipated that this growth will continue in 2023. By increasing domestic gas production and securing more gas via pipeline, particularly from Russia’s neighbor, the government also hopes to reduce its reliance on erratic and expensive LNG purchases. S&P Global Commodity Insights projects that flows into China via the 3,000-kilometer Power of Siberia network will increase to 22 bcm this year from 15 bcm in 2022.
Source: Reuters
