In a report released Tuesday, the International Energy Agency noted China’s economic recovery is going to ignite fierce competitions in global energy markets. The agency went on to warn that could drive the price of natural gas to “unsustainable” levels in the EU, as member states rush over the summer to refill reserve storage facilities in preparation for the next winter season.
In 2022, gas consumption in China fell due to a sluggish economy and lower industrial activity, as the nation repeatedly enacted its strict zero-Covid policies every time the nation detected a handful of virus cases. This could lead to entire regions locked down, ceasing all economic activity.
Simultaneously an unusually mild winter in Europe combined with energy saving-measures taken by EU governments and an unprecedented inflow of liquid natural gas (LNG), aiding the bloc to get through the winter without a major energy crunch.
The IEA said in its report, “Unprecedented price rises led to a 13% reduction in Europe’s gas demand as governments responded swiftly with emergency policies, industry scaled back production, and consumers dialed down thermostats.”
After Russia cut gas supplies to Europe, and an act of sabotage destroyed the Nord Stream 1 pipeline, permanently shutting down gas flows to Europe through it, Europe turned to liquified natural gas to replace the lost Russian flows.
In 2022, the global LNG trade hit an all time high in valuation, doubling to $450 billion, over the previous year, according to data from the report. The European Union was the primary driver behind the growth, as cargoes surged 63% last year.
The IEA warned that after skyrocketing last year, LNG prices have moderated due to present conditions, however this may not last. In 2023, as demand picks up in Asia, especially China, which has now fully abandoned its zero-Covid policies, LNG prices may be poised to skyrocket in 2023.
The IEA report estimates Chinese LNG demand may rise by 10% this year, although they acknowledge all forecasts are clouded by tremendous uncertainty due to volatile economic conditions. The reports goes on to cite circumstances which could produce a 35% rise in Chinese demand, if economic activity were to recover swiftly.
The IEA’s Director of Energy Markets and Security, Keisuke Sadamori said, “China is the great unknown in 2023. If global LNG demand returns to pre-crisis levels, that will only intensify competition on global markets and inevitably push prices up again.” He added that if that scenario were to combine with further supply cuts from Russia, it could present particular problems for buyers in the EU as they approach the next winter.
