China’s Oil and Gas Use Fell in 2022 for First Time in Decades

With its economy severely hampered by stringent measures to curb the spread of Covid-19, China’s oil and gas consumption declined in 2022 for the first time in decades, the International Energy Agency said on Friday.

But after China’s recent reversal of its lockdown policies, the agency’s executive director, Fatih Birol, said he expected a sharp rebound in demand, which could mean higher energy prices in other markets.

The reduction in Chinese energy use last year kept world prices from soaring even higher after Russia’s invasion of Ukraine, giving relief to Europe and the United States as they struggled to manage cuts in energy imports from Russia.

China’s reduced energy needs, combined with the unseasonably warm winter, mean that Europe “seems to be off the hook this winter,” Mr. Birol said in an interview. Many experts had expected energy costs to rise so high that European businesses would fail and a deep recession would follow.

He added that “next winter could be more challenging” since the weather could be colder, Russian fuel exports would be further reduced by Western sanctions over the war, and China’s economy would be recovering.

The State of the War

  • Military Aid: Germany and the United States announced they would send battle tanks to Ukraine, a decision that came after weeks of tense back-channel negotiations between Western officials. But it may be months before the tanks rumble across the battlefield.
  • Russian Strikes: A day after the announcement, Russia fired dozens of missiles at Ukrainian cities, piercing snow clouds and air defenses to kill at least 12 people across the country.
  • Corruption Scandal: After a number of allegations of government corruption, several top Ukrainian officials were fired, in the biggest upheaval in President Volodymyr Zelensky’s government since Russia’s invasion began 11 months ago.

The decline in Chinese consumption last year was relatively modest overall, but it was still important since China in recent years had been the world’s leading importer of oil and gas, and most energy experts said that should remain the case for at least a few years.

China’s oil demand for the year fell by 3 percent, or 390,000 barrels a day, the first decline since 1990, while total world demand increased by 2.2 million barrels a day, or roughly 2 percent, the energy agency said. The difference can be explained by much of the world’s recovery from the Covid-19 pandemic while the Chinese government kept many of its cities under lockdown.

The energy agency forecast an overall increase of two million barrels a day in global oil demand this year, with China accounting for half of the increase.

China’s demand for natural gas declined by 0.7 percent in 2022, the first drop since 1982, the agency reported. Imports of liquefied natural gas fell by 21 percent, dropping China to second place among importers, behind Japan. The United States is a major exporter of gas to China, but over the past year it shifted much of its Asian business to Europe.

The energy agency projects that global gas demand will increase by 0.4 percent this year. China’s demand is expected to grow by 6.5 percent.

“With the Chinese economy now recovering, it will have major implications for oil and gas market balances,” Mr. Birol said.

Even as Chinese consumption has expanded in recent years, its domestic oil and gas production have not kept pace despite efforts to explore and produce more of both. China remains highly dependent on coal, but it is trying to replace much of its coal burning with gas to improve the air quality in the country’s urban areas. It is also pushing for the adoption of electric cars and is a major producer of the batteries necessary for electrification of transportation and renewable power.

Mr. Birol said the strength of China’s rebound from its Covid-19 lockdowns this year would be a key determinant of global demand and prices. There remains a high degree of uncertainty because a recession in the United States and Europe could reduce demand.

But there are also questions on the energy supply side, Mr. Birol noted, with Russian energy production in doubt and only a modest increase in new liquefied natural gas export terminals to be built this year by producers like the United States, Australia and Qatar.

“China is the key uncertainty when it comes to 2023 global energy markets,” Mr. Birol said, adding that “how the country’s economy will perform will have massive implications for global energy markets.”

Mr. Birol said Russia could expect greater energy challenges as it pressed on with its invasion of Ukraine. While Russia seeks to redirect its energy exports, its oil and gas fields are beginning to suffer from a lack of attention by Western service companies that have left the country, he said.

Before the war, Russia sent 75 percent of its gas exports and 55 percent of its oil exports to Europe. It was able to offset the loss of its European business by selling more to China and India. But its oil and gas fields are mature and in decline, Mr. Birol noted. He said Russian oil exports remained flat from a year ago, while gas exports had been cut nearly in half.

Russian revenue from oil and gas in December was roughly 30 percent, or $8 billion per month, lower than a year earlier, Mr. Birol said.

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