China’s energy demand set to rebound in 2023 under COVID reopening plans, S&P says
If the energy crisis was bad this year, China’s recent relaxation of COVID-19 protocols could lead to a disastrous global crisis in 2023.
Since the Russian invasion of Ukraine in February, many countries around the world have faced rising energy bills, caused by sudden cuts in Russian oil and natural gas shipments abroad. Countries have used energy rationing and storage reserves before winter, when energy demand is highest.
So far, they have been largely successful in their efforts. Europe, at high risk of an energy crisis due to its high dependence on Russian oil and gas before the war, was declared “off hookthis winter by IEA chief Fatih Birol on Monday as the continent has so far enjoyed a mild winter.
But if Europe manages to avoid a serious energy crisis this winter, it is also because of China’s weak energy demand and the sluggish economy this year due to the country’s zero-COVID policy. China’s commitment to stamping out COVID has been a safety net in 2022 for European governments, but as the country looks to a wider reopening in 2023, that safety net could disappear soon enough.
China’s total energy demand is expected to grow by the equivalent of 3.3 million barrels of oil per day next year, compared with virtually no growth in 2022, according to the latest report from S&P Global. energy outlook report out on Monday. This would represent 47% of all growth in global energy demand next year.
“Soft demand from shutdowns in 2022 has been a critical safety valve for oil, gas and coal markets, as Europe has rushed to replace Russian energy,” Dan said. Klein, head of energy pathways at S&P Global Commodity Insights, in a statement. statement.
“With another year of vaccinations and growing frustrations over lockdowns in China, restrictions are likely to ease somewhat in 2023 and fossil fuel imports can be expected to rise again,” he said. -he adds.
China’s flat line in 2022
After years of continuous growth, 2022 has seen China lower electricity consumption for the first time in so many years factories are idle due to shutdowns and slowing economic activity overall.
Cumulative LNG imports to China have fallen 20.2% for the first nine months of 2022 compared to the same period last year, according to customs data, and Europe has taken full advantage of the available supply. During the summer, China was even resell its surplus liquefied natural gas to Europe due to weak domestic demand.
“Without this weak demand, prices for all commodities would undoubtedly have been higher, as the energy supply not absorbed by China has shifted to other regions, evidenced by the shift in LNG supply to Europe,” according to the S&P report.
But with winter approaching and its economy seemingly waking up from its slumber, Europe may not be able to count on China’s low energy demand for much longer.
Recovery of electricity demand in China
In October, China stopped its resales of LNG abroad to ensure its own energy supply before winter. But the real reversal in China’s energy demand outlook in 2023 may have taken place earlier this month, when the Chinese government began to slowly undo COVID-19 protocols that have been holding the country’s economy back since. the start of the pandemic.
This month, some cities in China have been take measures to relax COVID testing requirements and quarantine rules in response to nationwide protests criticizing the confinements and expectations of stagnant economic growth. Policies now removed include citywide mass testing in the event of high case numbers, hospitalization and quarantine requirements for people with mild or no symptoms, and widespread lockdowns preventing travel and restricting business operations outside of a designated high-risk area.
Despite mount new cases of COVID-19 in China, the country could continue to ease its zero-COVID policy in 2023, in which case energy consumption is expected to resume a “growth path”, according to S&P, with significant ramifications for global energy markets which have benefited from weak Chinese demand this year.
In Europe, meanwhile, the outlook for 2023 is looking increasingly bleak. While the continent has managed to overcome the worst of an energy crisis this year, all members of international organizations, including the IMF and the OECD to JP Morgan Change CEO Jamie Dimon warned that the real battle isn’t this year, it’s for the fall and winter of 2023, when Russian natural gas supplies will be even more constrained and competition from China will intensify.
In its report, the S&P warned that energy supplies for natural gas, coal and oil will remain constrained in 2023, urging vulnerable countries to prepare.
“European gas and power markets could be even tighter in 2023” amid tighter Russian supply, S&P warned. The report also warned European buyers not to count on a recurrence of weak LNG demand from Asia, while reiterating that China’s reopening plan will continue to drive global demand for LNG. energy next year.
“China’s COVID policy is the single most important fundamental driver for global commodity and energy demand in 2023,” Klein said.
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