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Chinese President Xi Jinping has good news for Europe: his country’s draconian zero-COVID policies should not be abandoned.
It’s a relief for European liquefied natural gas buyers, as China’s economic slowdown has freed up crucial LNG cargoes to replace Russian gas that supplied around 40% of European demand.
“Regardless of what you think of China’s zero-COVID policy, looking at it only from the perspective of European gas supply, it would be very useful for China to continue this policy,” said Dennis Hesseling, head of from gas to EU energy. regulatory agency ACER.
Xi took the stage on Sunday to kick off the week-long 20th Communist Party Congress, and he dubbed the zero COVID approach, calling it “people’s war to stop the spread of the virus.”
The once-every-five-year summit is “primarily a political meeting within the party itself,” but it sends crucial signals, said Jacob Gunter, senior analyst at China-focused think tank MERICS. So far, this indicates that China plans to “stick to [zero-COVID] for a while,” he said, adding that it’s partly because the government’s messages on the pandemic have frightened people so much that lifting them would cause “chaos,” while Chinese reluctance to vaccination also remains high.
Since the outbreak of the pandemic in 2020, China has ruthlessly pursued its coronavirus crush policy, involving instant lockdowns of entire cities accompanied by mass testing, surveillance and border closures. According to Jörg Wuttke, President of the EU Chamber of Commerce in China.
China and the EU each imported around 80 million tonnes of LNG in 2021, but Chinese imports will drop to 64 million tonnes this year, according to data from trade information firm ICIS. This helps the EU buy gas on the global market and use it to fill the continent’s storages ahead of the winter heating season.
“Europe is lucky that China is in a severe economic downturn that will last until 2023,” Wuttke said, adding that falling demand from China – historically the world’s largest LNG importer – is “roughly equivalent to all of Britain’s annual LNG imports”. .”
With EU gas storage now more than 90% full, the conversation in Brussels has already started to turn towards securing sufficient supplies for next year. At the summit of EU energy ministers last week, the head of the International Energy Agency, Fatih Birol, warned that “next winter could well be even more difficult”.
As things stand, Beijing’s LNG imports are expected to recover to 2021 levels next year, according to Tom Marzec-Manser, senior gas analyst at ICIS, with deliveries typically increasing around the winter season and then likely to resume next summer.
China has already ordered its public 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, it could lead “to another dramatic shift in growth,” Marzec-Manser said.
European countries are well aware of this risk.
In a presentation given by ACER at last week’s Informal Energy Council, ministers were told that “the drop in demand for LNG volumes due to COVID in China is currently being absorbed” by the bloc. “This raises questions as to when Chinese LNG demand might return to normal growth rates,” he added.
Although Russian shipments have fallen to less than 9% of EU demand, some gas from the Kremlin continues to come through. But “it may not be available at all next year,” ACER’s Hesseling said, adding that if there is no Russian gas and Chinese demand comes back strong, measures to more radical energy savings would be needed in the EU.
EU leaders will meet later this week to discuss new measures to tackle soaring energy prices in Europe, including measures for next year such as the joint purchase of gas.
According to a senior EU diplomat, “competition from Asia [is] constantly mentioned,” adding that “it is quite obvious” that a change in Beijing’s lockdown policy “could increase global demand and increase prices.”
“China is indeed a competitor and that must be taken into account whatever we do,” they said.
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