This year's surge in world prices for basic energy carriers – oil, gas and coal – is making importer countries respond to the challenge by adjusting their national energy strategies. A particularly indicative response is that of China, Russia's key partner in purchasing hydrocarbons.
The activity of Chinese authorities in trying to address the lack and expensiveness of energy resources, primarily coal (the share of coal generation is some 60% of the country's total electricity production), has begun yielding certain results. Thus, October 27 saw thermal coal futures fall to the lowest level in over a month, showing a decline for several consecutive exchange sessions. Such an impressive price adjustment followed the investigation initiated by the Chinese authorities to expose illegal storage facilities in a number of coal-producing provinces where fuel reserves were being accumulated. The National Development and Reform Commission (NDRC) said many unlicensed coal storage facilities were found around the pits in the country's key mining areas, which allowed illegal traders accumulate coal and gravely distort the market. Moreover, the Chinese authorities are permanently urging local coal producers to ramp up production.
A "coal" record was fixed on October 19, when the most liquid January solid fuel futures at the Zhengzhou Commodity Exchange came close to 2,000 yuan (over $300) per ton. Average coal prices in China are expected to drop to 700 yuan next year (from the 912 yuan in 2021). This forecast was presented on October 26 in a research client note by Morgan Stanley Bank.
Price surge is not even restrained by rapidly growing external supplies: in September, China increased thermal coal imports from Russia by 28% against August, to 3.7 million tons. And the total September coal imports to China have increased by 76% as compared to 2020 and amounted to 32.9 million tons. This came in a report by CNBC.
China's energy deficit payment requires not only more coal, but also more oil and gas. Here the authorities place their stakes on both imports and domestic energy potential development.
In 2021, the oil and gas production sector of China demonstrates considerable progress. According to The National Bureau of Statistics of the People's Republic of China (NBS), the first three quarters witnessed a 2.5% increase in oil production (against the same period last year), to 149.84 million tons; and a 10.4% increase for natural gas, to 151.8 billion cubic meters.
There is also noticeable dynamics in the volume of three-quarter imports of natural gas. Gas imports grew by 22.2% in the first three quarters of 2021. But one should remember that the fourth one promises to be difficult in satisfying applications. The intrigue is that demand in the global LNG market continues to increase. But supply may fall by the end of the year: according to a Rystad Energy review, the global LNG market will not get up to 4% of planned monthly supplies between November and February over production deficiencies. Which will exacerbate global competition for LNG shipment, especially between buyers from Asia and Europe. So far, China is unconditionally defeating Europe in this struggle.
But in oil imports, a downward course was indicated – in the first nine months of 2021, China reduced black gold procurement by almost 7% , to 387.4 million tons. This is very inspiring for Chinese president advocating for the country to gain energy independence as soon as possible.
In October, Xi Jinping visited the Shengli oil and gas field, urging Chinese oilmen to keep working hard for the sake of successful economic development. He expressed hope for upcoming industry successes, adding that forming the oil industry is of utmost importance for the country.
Chinese oil companies record successes both in production and in terms of expanding the resource base. In particular, late September saw CNOOC Corporation announce a major discovery of the Kenli 10-2 field in southern Bohai Bay with reserves accounting for some 100 million tons of oil.
China's decreased external oil purchases and improved indicators of national oil production are certain signals to Russian exporters to be wary, given the Russian oil companies' substantial strategic stakes on China's consumer potential. Still, the latter actively spent oil from state reserves this summer, that were being actively replenished amid the quotation slump back in spring 2020. This ultimately affected total oil imports in 2021. And next year, things may go differently, with China likely to start up-scaling oil purchases. By the way, last year China doubled down oil imports, despite the COVID-19 pandemic. According to the Chinese General Administration of Customs, the country's 2020 oil imports increased by 7.3% (against 2019), to a record high of 542.39 million tons.
So, Tianxia's "long march" for the ambitious goal of gaining energy independence may not have begun yet. It is closely related to the decarbonization strategy. In a video message to the UN General Assembly of September 2020, Chinese President Xi Jinping announced the country's plan to make it all the way to the peak in carbon emissions by 2030 but achieve carbon neutrality by 2060.
