High fuel prices and a cooling economy will lower China’s electricity hunger this year, partly reversing 2021’s staggering 10.3% growth. The Asian powerhouse consumed 8,312.8 TWh of electricity in 2021, National Energy Administration data shows and analysts expect electricity demand growth to slow to 4.5% for the years through 2024.
Spot LNG prices into northeast Asia have fallen nearly 30% after two of China’s state gas companies issued large LNG cargo sale tenders, indicating they are well-stocked amid sluggish demand. Sinopec offered 2-5 LNG cargoes each month between February and October delivered on an ex-ship basis, while CNOOC is selling cargoes for May through November.
Snow storms have made Japan’s utilities scramble to secure spot LNG as gas-burn for power generation rises to compensate for unplanned coal power outages. One utility buyer reportedly snapped up several spot LNG cargoes for February delivery – though the JKM spot LNG price, benchmark for cargoes to Northeast Asia, last traded as high as $18.945 per MMBtu.
Siemens Energy has reduced its target for fiscal 2022 as revenue from its gas and power segment fell 5.9% to €4.140 million and amid a profit warning from its Spanish wind power arm Gamesa. Management now expects FY2022 revenue to be in a range of 2% decline to 3% growth, compared with -1% to 3% in earlier guidance.
Electricity demand growth in China is forecast to exceed 8% in 2022, driving up global coal and LNG prices, which forces power generators to think twice whether to import natural gas or rather keep burning coal. Wood Mackenzie expects a “doubling of spend by Chinese NOCs in 2022,” up from its current US$4 billion guidance.
The International Energy Agency (IEA) was mistaken when stating in July 2021 that global demand for fossil fuel-based electricity peaked. On the contrary, coal- and gas-burn rebounded 9% and 2%, respectively, once lockdowns were lifted and analysts now say this trend will not change before 2024, when renewables could outpace fossil power additions.
US State Department officials have asked European utilities where they would source natural gas from if the escalating conflict between Russia and Ukraine impairs supplies. Gazprom already reduced deliveries since the autumn, creating artificial tightness, but the US promises to ship LNG if contracted Russian gas flows get halted due to conflict or sanctions.
The International Energy Agency (IEA) has dismissed rumours that Europe’s high gas and electricity prices are caused by the clean energy transition. “This is not a renewables crisis; it’s a gas market crisis,” IEA head Fatih Birol said, pointing out Gazprom lowered export to Europa by 25% since November 2021 and currently delivers one-third less than it could.
China may triple electricity generation to cover 60%, instead of currently 23% of total energy demand to reach Net Zero by 2060, Royal Dutch Shell reckons. The oil major also predicts green hydrogen to play a key part in China’s future energy mix as the country’s carbon price will quadruple to 1,300 yuan ($204.82) per tonne in 2060.
Concerns about exposure to Russia push gas buyers towards LNG contracting. “Both oil- and Henry Hub-indexed longterm LNG contracts will trade at a considerable discount to local spot prices through to 2025/6,” Wood Mackenzie reckons, though utility companies need to commit to longer duration contracts to take advantage of the current spot price premium.
Concerned about an excessive onshore wind buildout, Germany’s biggest TSO TenneT underlined the vital role of new hydrogen-ready gas power plants. “If we want to exit coal already by 2030 already, the economy ministry needs to honour his commitment to H2-ready power. TSOs need stable capacity to balance the grid,” says TenneT COO, Tim Meyerjürgens.
Classifying unabated gas-fired power plants as “transitional investments” – as in the EU taxonomy proposal – attracts financial and utility investors. As it stands, both will be able to increase their corporate “green scoring” by investing in gas, including outside Europe. The CO2 cap for new power plants build by 2030, meanwhile, paves the road for hydrogen co-firing.