Feb 28, 2023
China’s Gas Demand Is a Bigger Worry for Europe Than Russia Cutoff
(Bloomberg) -- Europe’s gas supplies could be hit harder by a bigger-than-expected jump in Chinese demand this year than from a complete halt in Russian flows, according to the International Energy Agency.
While Chinese demand is the “big unknown,” a bullish scenario could see the country’s liquefied natural gas imports surge as much as 35% in 2023 if costs fall further and its economy expands quickly, the IEA said in a quarterly report. That would boost global competition for the fuel and may push prices back up to the “unsustainable” levels seen last summer, it said.
China has reversed strict Covid restrictions that curbed its energy demand last year and helped Europe to import record amounts of LNG from around the world. Together with energy-saving measures and a mild winter, the LNG purchases allowed Europe to survive the heating season with much lower Russian flows and pushed gas prices down more than 80% from record highs.
Faster economic growth in China this year should lift its fuel needs, but the big questions is whether that will raise gas purchases to the heights of previous years.
Reflecting the uncertainty over China’s demand, the IEA said there’s a difference of 40 billion cubic meters between the lowest and highest estimates of the nation’s net LNG imports this year. The top end of the range would see China’s imports surge well above the previous peak in 2021, the agency said. The estimate gap is equal to about 8% of what Europe may consume this year.
“This range is greater than the uncertainty associated with the potential loss of all remaining pipeline gas flows into Europe from Russia,” the agency said.
For now, China’s total gas consumption is expected to rebound by almost 7% in 2023, according to the IEA. Europe’s usage dropped the most on record in 2022 and may ease slightly this year. The IEA and European Union officials have warned that consumption discipline remains critical for the continent given lower supplies from Russia, its former top supplier.
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