Rare 2022 Demand Decline
Last year, while the world saw overall oil demand grow following the reopening of economies and gas trade flows materially shifted after the Russian invasion of Ukraine, China’s demand was subdued and fell for both fossil fuels—for the first time in decades. The Chinese economy continued to grow last year, but at a much smaller pace than in previous years.
Combined with the property crisis and the zero-Covid policy, all these dragged Chinese oil demand down by 3% – or by 390,000 barrels per day (bpd), according to estimates by the International Energy Agency (IEA). That was the first annual decline in oil consumption in China since 1990.
At the same time, global oil demand rose by 2.2 million bpd in 2022, per the IEA.
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Natural gas consumption in China also fell last year—by 0.7 percent, for the first annual fall in demand in four decades, according to the energy agency. China’s LNG imports also fell, much more than gas demand, and China handed back to Japan the top spot in LNG importers in the world.
In 2022, China saw a rare drop in gas consumption amid a slowdown in economic growth, while most of South and Southeast Asia simply couldn’t afford the skyrocketing spot LNG prices after the Russian invasion of Ukraine and Europe’s race to replace Russian pipeline gas. LNG buyers have returned to securing term deals, even buyers in Europe that were previously reluctant to lock in supply for the long term in view of the clash between the carbon footprint of LNG and the EU’s climate ambitions.
Expected 2023 Rebound
Demand for oil and gas in China is expected to rebound this year, as Beijing ditched the zero-Covid policy, which should lead to a jump in mobility and economic activity, analysts say.
The IEA also expects a rebound in Chinese oil and gas consumption, with oil demand growth in China driving half of the currently projected global oil demand growth in 2023.
“With the Chinese economy now recovering, it will have major implications for oil and gas market balances,” Fatih Birol, Executive Director of the IEA, told the New York Times in an interview.
Global oil demand is set to rise by 1.9 million bpd in 2023, to a record 101.7 million bpd, with nearly half the gain coming from China following the lifting of its Covid restrictions, the IEA said in its Oil Market Report for January.
“Two wild cards dominate the 2023 oil market outlook: Russia and China,” the IEA said.
“China will drive nearly half this global demand growth even as the shape and speed of its reopening remains uncertain,” the agency noted.
In the interview with NYT, the IEA’s Birol said that “China is the key uncertainty when it comes to 2023 global energy markets,” adding that “how the country’s economy will perform will have massive implications for global energy markets.”
OPEC also expressed more optimism about Chinese oil demand and the global economy this year in its Monthly Oil Market Report (MOMR) in January.
China’s reopening is set to push demand higher, and “In addition, China’s plans to expand fiscal spending to aid the economic recovery is likely to support oil demand in manufacturing, construction and mobility,” OPEC said.
Globally, economies look more resilient than previously expected, the cartel said.
“The global momentum in 4Q22 appears stronger than previously expected, potentially providing a sound base for the year 2023, especially in the OECD economies. The 2022 growth in both Euro-zone and US has surpassed previous forecasts,” OPEC noted.
Saudi oil giant Aramco expects the Chinese reopening and a pick-up in jet fuel demand to lead to a rebound in global oil demand this year, Amin Nasser, the CEO of the world’s biggest oil firm, told Bloomberg in an interview earlier this month.
“As China’s infection rate slows post-Chinese New Year, we see domestic oil demand rebounding. As the population hits the roads and the skies, our expectation is Chinese oil consumption in 2023 will increase by around 1.0 million b/d, an impressive performance considering Q1 demand is likely to contract by 190,000 b/d,” Gavin Thompson, Vice Chairman, Energy – Asia Pacific, at Wood Mackenzie, said earlier this month.
“Look for a particularly bullish Q2, with China adding 1.36 million b/d over the same quarter in 2022, the strongest growth in over a decade (excluding the post-Covid bounce) that will support higher prices,” Thompson added.
China may be one of the two wild cards in oil markets this year, together with Russia, but one thing is certain in energy markets – the Chinese economy and oil and gas consumption trends will shape the markets this year.
By Tsvetana Paraskova for Oilprice.com
