Key themes to dominate China’s 2022 energy landscape
Research company Wood Mackenzie has presented the top five key themes that the firm predicts will shape the energy landscape in China in 2022.
The top five themes include:
Economic growth
The anticipated decrease in China’s GDP from 8.1% in 2021 to 5.4% in 2022 will pressure overall energy demand growth in 2022, according to Wood Mackenzie.
Yanting Zhou, principal economist at Wood Mackenzie said: “China’s Covid policy is one of the biggest uncertainties impacting its economy and energy demand. Our base case assumes Covid restrictions remain tight until the 20th National Congress of the Communist Party in November. Travel restrictions will increase before and during the Winter Olympics and the Party Congress which will impact gasoline and jet fuel demand.”
However, in the event of regional outbreaks, the Chinese government is expected to implement lockdowns which will result in decreases in energy demand.
As the year progresses, global economies are expected to increase re-opening of economies resulting in an increase in export demand for China. This will push China to expand its industrial activities to meet the growing demand, a move that will also drive a rise in energy demand, according to the research firm.
Energy projects listed in the country’s 14th Five-Year Plan are expected to receive government funding for implementation as China aims to revive its economy, states Wood Mackenzie.
Stability in energy prices
Increases in gas prices and oil prices globally and in coal prices locally in 2021 have led to the Chinese government developing and enacting policies that will ensure energy security in the short term, according to Wood Mackenzie.
In 2021, China recorded a 50% increase in energy commodities imported by importing $366 billion worth of commodities due to increases in gas and oil prices. As a result, the country is expected to reduce its dependence on oil and gas imports to avoid the impact of fluctuations in global prices on its economy.
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Shortages in coal and increases in prices during the second and third quarters of 2021 resulted in power outages and economic slowdown in China. Such events pushed China to expand its local coal production to meet demand resulting in decreases in coal prices at the end of 2021. Wood Mackenzie predicts the prices of coal to continue to decline in 2022.
However, overall power prices for industrial sectors will increase despite lowered spot coal prices due to power price liberalisation, which is now allowing inflation pressure at the industrial level to be passed on to consumers, states Wood Mackenzie.
The energy transition
The energy transition is expected to gain momentum in 2022 with both the government and energy sector players seeking to develop and implement renewable energy deployment, coal reductions measures, and ways to increase the share of gas in the energy mix.
Research director Miaoru Huang said: “China may have resorted to stabilise coal supply in the short term and balancing competing energy goals is still challenging, but it does not mean it is diverting away from its long-term climate change goals. China is set to accelerate the pace of matured technology adoption in 2022.”
The research firm states that China will increase solar and wind energy capacity deployment by 20% in 2022 compared to 2021 by adding up to 120GW of capacity. Between 2021 and 2025, renewables are expected to account for more than 50% of new capacity additions.
The number of electric vehicles in China is expected to reach 4.8 million units in 2022, a 45% increase compared to units on the road in 2021.
Repeat of supply chain disruption due to ‘dual-control’ targets unlikely
The ‘dual-control’ scheme adopted by China to reduce the impact of shifts in energy prices globally on the country’s economy is expected to remain a key policy tool to promote energy efficiency and guide economic restructuring.
Much uncertainty on China-US relations, but there are hints of positive beginnings
Collaboration on liquefied natural gas and climate change mitigation, promoted during November’s COP26 summit in Glasgow, will pave way for new negotiations for partnerships between the two countries, according to Wood Mackenzie.
At COP26, Chinese companies inked seven LNG deals with US suppliers with a peak annual contracted volume of 10.5 million tonnes per annum, or total volumes of some 170 million tonnes over the delivery periods, worth over $50 billion.
A new US-China trade deal might be signed in 2022 and energy security and decarbonisation might be key areas of focus by the two countries, reiterated Wood Mackenzie.
