Electricity demand growth in China is forecast to exceed 8 percent 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.
Economist remain positive for 2022, even though the pandemic has not come to an end just yet: “Fears over both Omicron and a collapse in China’s real estate sector are overblown,” says WoodMac’s head of Asia Pacific Power & Renewables, Alex Whitworth. It’s rather that China’s resilient manufacturing sector and strong export growth will keep driving up demand, along with prices of coal and LNG.
Exceptionally high gas and power prices are seen as the biggest risk to Asia’s wider economy. “Most consumers in China, India and other fast-growing Asian markets have not yet felt the full impact of rising energy costs,” Whitworth commented. In the worst case, spiralling demand could cause supply shortages – similar to the ones in summer 2021 during the fast recovery of the Chinese manufacturing sector from the Delta-variant of the coronavirus.
Corporates, especially energy-intensive industries, have been burdened by spiralling costs for electricity, heat and other raw materials. At the same time, they have to comply with ever-more stringent environmental rules and policies that favour renewable energy sources or clean fuels like hydrogen over traditional thermal fuels.
Corporates at a tipping point
Most corporates in Asia, the United States and Europe have set out energy transition goals, and some have already provided elaborate strategies and capital guidance. “2022 will be a tipping point on the back of more ambitious pledges at COP26 as strategies materialise into investment decisions,” reckon WoodMac’s directors for corporate research, Kavita Jadhav and Andrew Harwood. Having evaluated a multitude of corporate guidance, they see 2022 shaping up to be a transitional year as decarbonisation takes a firm hold.
“We could see a doubling of spend by Chinese NOCs in 2022, for example, from the current US$4 billion guidance. Greater country-level ambition and target setting for 2025-30 will bring forward investments,” the two analysts commented. Based on WoodMac’s emissions benchmarking tool, Chinese NOCs represent up to a fifth of global (Scope 1 and 2) emissions from 2022-30 – meaning there is still much room for improvement.