China’s Energy Shift: A Ray of Hope for Europe’s Warmth
China’s energy policy will have an indirect positive impact on Europe. After the Covid-19 pandemic subsides, the country’s economy will bounce back, resulting in an increased desire for liquefied natural gas. European countries have been avoiding gas from Russia since the invasion of Ukraine, and are now seeking alternative fuel sources. However, China’s plan to increase pipeline imports, utilize more coal and enhance domestic gas production is expected to control the growth of the country’s demand for LNG in 2023, thereby reducing the strain on Europe’s gas consumption.
The People’s Republic was the leading purchaser of LNG globally. However, their purchases decreased by 20% to 64 million tons or 88 billion cubic meters (bcm) in gas form in the following year due to lockdowns that impacted economic activity. The high gas prices in Europe also led Chinese traders to redirect US cargo secured through more affordable long-term contracts to Europe for a profit, a trend that could continue. Kpler shows that the European Union imported a record-breaking 131 bcm of LNG last year, which is 60% more than in 2021.
China’s economic outlook has improved after the sudden abandonment of its zero-Covid policy in December. However, declining real estate and weakening exports suggest that the recovery will not be as strong as it was when China first lifted Covid restrictions in 2021. The top industry body in China, the China Electricity Council, predicts that power consumption, a crucial indicator of economic activity, will only increase by 6% in 2023, compared to 10.3% in 2021. This is why it is forecasted that China’s LNG imports will only rise by 7% this year to 94 bcm, according to data provider OilChem China, which is 14% below their 2021 peak.
There are several reasons to believe that China’s reopening will not intensify Europe’s gas shortage. In 2021, due to power shortages, Beijing put more emphasis on coal, which accounts for about 60% of the country’s total energy consumption. China’s coal production increased by 9% to reach a record 4.5 billion tons in 2022 and is projected to grow further in 2023. The government aims to decrease its dependence on expensive and unpredictable liquified natural gas imports by increasing domestic gas production and securing more gas through pipelines, especially from Russia. The Power of Siberia pipeline is expected to bring in 22 bcm of gas to China this year, compared to 15 bcm in 2022, according to S&P Global Commodity Insights.