Analysis of China's energy market in the first half of 2023
Click:0    DateTime:Nov.15,2023

By Diao Yuqian, Ren Yaxi, Li Tianqi, CNOOC Research Institute Ltd

Oil market: gradually recovering with healthy supply-demand fundamentals

China's economy and society fully resumed to normalization in the first half of 2023. According to the preliminary estimates by the National Bureau of Statistics, China's oil processing volume reached 364 million tons in the first half of the year, up by 9.9% year on year. On the domestic supply side, China's oil output hit 105 million tons in the first half of the year, up by 2.1% year on year. The oil production remained stable, guaranteeing gradual improvement in the domestic energy supply capacity. In terms of import, according to China Customs data, China’s oil import volume was at 282 million tons in the first half of the year, up by 11.7% year on year. Of the import origins, Russia was the biggest contributor to Chinese oil import market, supplying 52.6 million tons in the first half of the year, up by 27.3% year on year. The imported volume from Russia valued RMB193.1 billion and the average import price was at RMB3 670/ton. The sconed biggest supplier was Saudi Arabia, with the volume of 46.52 million tons, the value of RMB194.9 billion, and the average price of RMB4 189/ton.

Natural gas market: bouncing back with production, consumption and imports all on the rise

China's natural gas consumption and imports saw a rarely-seen decline in 2022, and hence the natural gas market appeared subdued.  In the first half of 2023, however, the market regained its ground. The consumption was at 194.1 billion cubic meters, up by 5.6% year on year; the production was at 115.5 billion cubic meters, up by 5.4% year on year; and the import volume was at 79.4 billion cubic meters, up by 5.8% year on year, with the volume of pipeline gas at 33.2 billion cubic meters and that of LNG at 46.2 billion cubic meters, up by 7.2% year on year. In terms of LNG import origins, Australia ranked No. 1, with the volume accounting for 33.8%, Qatar and Russia were the second and third, taking up about 24.7% and 11.6%. In addition, China imported LNG from 15 other countries.

Renewable energy market

Domestic renewable energy market maintained robust development trend in the first half of 2023. In terms of installation, the new installed capacity of renewable energy was at 10 900 kilowatts, a year-on-year increase of 98.3%, accounting for 77% of the new installed capacity. Thus, the total installed capacity reached 1.38 billion kilowatts. Among them, the new grid integration of wind power was at 22.99 million kilowatts, that of photovoltaic power was at 78.42 million kilowatts, that of conventional hydropower and biomass power was at 2.06 million kilowatts and 1.76 million kilowatts. With the massive start-ups of offshore wind power projects in Shandong and Guangdong, offshore wind power maintained the upward momentum in the first half of the year. As of the end of June, the new grid-connected capacity hit 1.1 million kilowatts, and the cumulative installed capacity was at 31.46 million kilowatts. From the perspective of power generation, renewable energy power generation capacity reached 1.34 trillion kWh in the first half of the year. Wind power photovoltaic power generation capacity accounted for the half, hitting 729.1 billion kWh, a year-on-year increase of 23.5%. The national hydropower generation capacity was at 516.6 billion kWh, indicating that it is still playing an important role in the supply of electricity; biomass power generation capacity was prominent, at 98.4 billion kWh, up by 10.1% year on year. In terms of electricity consumption, the social electricity consumption totaled 4.3 trillion kWh, up by 5.0% year on year. As for policies, the National Energy Administration released the Blue Book on New Power Systems in June 2023, emphasizing on the promotion of diversification, industrialization and marketization of new reserve energy, and putting forward the overall framework and key tasks for building new power systems for the first time so as to accelerate constructing new power systems.

Countermeasures and recommendations for opportunities and challenges

In terms of the oil market, the security challenges faced by China's oil and gas maritime transportation have become increasingly bigger on the back of the ongoing geopolitical conflicts. In response, the market players should focus on improving the onshore oil and gas pipeline network across Asia; planning ahead, coordinating and exploring the extension of China's oil and gas pipelines to the Middle East to connect with key oil production countries’ pipelines; accelerating the process of integrating the production, transportation and consumption in the Asian energy markets; realizing the interconnection between oil and gas resource countries and consumer countries; and improving the  energy transportation security.

As for the natural gas market, the global natural gas market is gradually rebalancing, with the US and European gas storage depots replenishing orderly and the Asian market in a stable recovery. The overall natural gas market is improving globally. In China, the supply of natural gas is supported by domestic gas and the supplement via the China-Russia east-route natural gas pipeline, while the demand will keep resuming amid the recovering economy and the natural gas prices returning rational, so the supply and demand fundamentals are stable-to-better. In addition, a sharp decline in LNG spot prices has triggered the importing enthusiasm of LNG imports, so new developing trend has emerged in the industry, followed by new requirements. In this regard, the government should reinforce its coordinating and guiding role in the promotion of the healthy development of the natural gas market jointly with relevant enterprises. The upstream producers focus on increasing production and storage, while steadily expanding global trades, so as to guarantee stable domestic supply; the midstream producers optimize the layout of infrastructures construction in order to give more push for the shaping of the "national network"; the downstream producers strengthen the synergistic development of multiple energy resources, and promote capitalizing on natural gas to reduce carbon, accelerating the construction of new energy systems.

Compared with other countries with higher proportion of new energy, China’s renewable energy market is deficient of flexibly regulating power supply as a result of the characteristics of China's large power grid as well as the natural properties of wind power, photovoltaic power generation and other clean power such as randomness, volatility and intermittency. At present, China's power flexible regulation capacity is badly needed, with insufficient cross-provincial and cross-regional delivering capacity. As a result, the consumption and absorption capacity of renewable energy power has been a drag. In response, players should focus on scientific and technological innovation and make all efforts to find out original and leading technological solutions. With new processes and technologies, they can improve equipment performance, reduce production costs and enhance energy efficiency. In addition, they should take the construction of energy storage as a key point to accelerate building multi-energy, safe and efficient new power system; promote the regulating role of new reserve energy; gradually enhance the power regulation capacity; promote big-scaled and effective development and consumption of renewable energy power; and guarantee the safe and stable supply of energy.