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Tag: Fatih Birol

  • China’s COVID lockdowns spell relief for Europe’s energy security worries

    China’s COVID lockdowns spell relief for Europe’s energy security worries

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    China’s President Xi Jinping has some good news for Europe — his country’s draconian zero-COVID policies aren’t likely to be dropped.

    That’s a relief for European buyers of liquefied natural gas, as China’s economic slowdown has freed up LNG cargos crucial to replacing the Russian gas that used to supply about 40 percent of European demand.

    “Regardless of what you think about the Chinese zero-COVID policy, simply looking at it only from the perspective of European gas supplies, it would be very helpful if China continued this policy,” said Dennis Hesseling, head of gas at the EU’s energy regulator agency ACER.

    Xi took to the stage Sunday to kick off the week-long 20th Communist Party congress, and he doubled down on the zero-COVID approach, calling it a “people’s war to stop the spread of the virus.” 

    The once-in-five-year summit is “mostly a political meeting for within the party itself” but it does send crucial signals, said Jacob Gunter, a senior analyst at the China-focused MERICS think tank. So far it indicates China plans to “stick with [zero-COVID] for a while,” he said, adding that’s partly because government pandemic messaging has so spooked the population that lifting it would cause “chaos,” while Chinese vaccine hesitancy also remains high.

    Since the outbreak of the pandemic in 2020, China has ruthlessly pursued its policy of crushing the coronavirus, involving snap lockdowns of entire cities accompanied by mass testing, surveillance and border closures. The slowdown in growth and depressed demand led to China’s LNG imports sinking by one-fifth, or 14 billion cubic meters, year-on-year for the first eight months of 2022, according to Jörg Wuttke, president of the EU Chamber of Commerce in China.

    China and the EU each imported around 80 million tons of LNG in 2021, but China’s imports will fall to 64 million tons this year, according to data by market intelligence firm ICIS. That’s helping the EU buy gas on the global market and using it to fill the Continent’s storages ahead of the winter heating season.

    “Europe is lucky that China has a severe economic downturn which will last well into 2023,” said Wuttke, adding that the drop in demand from China — historically the world’s largest LNG importer — is “roughly equivalent to the entire annual LNG imports of Britain.”

    2023 worries

    China’s President Xi Jinping | Anthony Wallace/Pool/AFP via Getty Images

    With EU gas storage now over 90 percent full, the conversation in Brussels has already begun to shift to securing enough supplies for next year. At last week’s summit of EU energy ministers, International Energy Agency chief Fatih Birol warned that “next winter may well be even more difficult.”

    As things stand, Beijing’s LNG imports are likely to rise back to 2021 levels next year, according to senior ICIS gas analyst Tom Marzec-Manser, with deliveries typically increasing around the winter season and then likely to ramp up again next summer.

    China has already ordered its state-owned gas importers to stop reselling LNG to the EU to preserve stocks for the winter season at home.

    But if the zero-COVID policy is scrapped, that could lead “to a step-change in growth again,” said Marzec-Manser.

    European countries are well aware of this risk.

    In a presentation given by ACER during last week’s informal Energy Council, ministers were told that “China’s COVID-driven demand decline in LNG volumes is currently being absorbed” by the bloc. “This raises questions as to when China’s LNG demand may turn back towards normal growth rates,” it added.

    Although Russian shipments have fallen to less than 9 percent of EU demand, some Kremlin gas is still getting through. But “that may not be available at all next year,” said ACER’s Hesseling, adding that if there is no Russian gas and Chinese demand comes roaring back, more radical energy-saving measures would be needed in the EU.

    EU leaders will meet later this week to discuss further measures to tackle sky-high energy prices in Europe, including measures for next year such as joint gas purchasing.

    According to one senior EU diplomat, “competition from Asia [is] mentioned constantly,” adding that “it’s quite evident” a change in Beijing’s lockdown policy “may raise global demand and raise prices.”

    “China is indeed a competitor and that needs to be taken into account whatever we might be doing,” they said.

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    Victor Jack

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  • Putin threatens Europe again as Brussels braces for winter

    Putin threatens Europe again as Brussels braces for winter

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    The EU’s energy crisis response is getting bigger, slowly. But so, too, is the threat posed by Russia’s freeze on Europe’s gas supply.

    A new package of measures to bring down the price of gas and protect consumers this winter and beyond — including plans to fully leverage the EU’s collective buying power — will be formally proposed by the European Commission next week.

    But there remains uncertainty about key aspects of the package — including whether the preferred intervention of many countries, an EU-wide cap on gas prices, will be part of it, and if so, in what form. It could also take until November to get next week’s proposals fully signed off and operational, officials said.

    Even as energy ministers deliberated over the measures in Prague on Wednesday, Russia issued new, veiled warnings about the depths of Europe’s vulnerability.

    Speaking at an energy conference in Moscow, the head of Gazprom Alexey Miller warned European homes could still freeze this winter even though EU countries have nearly filled their gas storage capacity.

    At the same event, Vladimir Putin discussed the sabotage of the Nord Stream pipelines — an act that many Western governments suspect was the work of Russia. Then he added pointedly that the incident had shown how “any critical infrastructure in transport, energy or communication infrastructure is under threat — regardless of what part of the world it is located, by whom it is controlled, laid on the seabed or on land.”

    Noting that one of the pipelines is still potentially operational after the attack, Putin insisted Russia was ready to send gas through it to ease Europe’s pain this winter — bringing his overarching strategy of gas blackmail against Europe right up to date.

    “The ball, as they say, is on the side of the European Union. If they want it, let them just open the tap,” Putin said. “We are ready to supply additional volumes in the autumn-winter period.”

    Putin may still be hoping that when the reality of winter without Russian gas begins to bite, European governments will be more open to such overtures ­— and more willing to rein in support for Ukraine in exchange for an energy lifeline.

    For the EU’s part, Energy Commissioner Kadri Simson was clear that while the bloc faced “difficult times,” countries would withstand the challenges ahead if they “act together, decisively and in solidarity.”

    Speaking at the close of an informal summit of EU energy ministers on Wednesday, she added that the next crisis package will also contain a proposal for a new benchmark price for gas and further measures to reduce demand across the bloc.

    But while a row over capping the price of gas has dominated the debate in recent weeks, momentum has shifted to the idea of joint purchasing on the international market. It is hoped that through this measure the bloc can avoid the situation seen this year when member states outbid one another for supplies when filling gas storage facilities ­— driving up the price for all.

    European Commissioner for Energy Kadri Simson | John Thys/AFP via Getty Images

    In an informal policy paper issued on Wednesday, Germany and the Netherlands set how such a measure could work, by beefing up the existing EU Energy Platform, which was established months ago but then barely used. Efforts to buy gas jointly should be coupled with better EU-wide coordination of gas storage next year, the German and Dutch paper said.

    The proposals point to the extent to which the EU is no longer simply planning how to survive this winter without rolling blackouts. It’s now firmly planning for a crisis next winter too.

    Executive Director of the International Energy Agency Fatih Birol, who also attended Wednesday’s summit in Prague, warned ministers that “the next winter may well be even more difficult.”

    That message was echoed in a sobering briefing from the EU Agency for the Cooperation of Energy Regulators, which outlined how challenging 2023 and potentially 2024 could be for the bloc’s energy supply. Amid an expected surge in demand in Asia for liquefied natural gas (LNG), the EU will face greater competition for limited LNG supplies from sources such as the U.S. and Qatar.

    In short, every molecule of gas that remains in European storage after this winter might be vital — and Vladimir Putin knows it.

    Victor Jack and America Hernandez provided additional reporting.

    Charlie Cooper

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