China re-opens: Implications for energy markets and policies
China’s reversal of its zero-COVID policy in December 2022 and macro policies aimed at reinvigorating economic activity point to a strong outlook for energy demand. But the sharp policy U-turns are also leading to volatility and uncertainty in the domestic market: Oil product stocks have drawn down while gas shortages have emerged in northern China. With oil demand likely to grow by 0.7 mb/d this year, and gas demand by close to 30 bcm y/y, there will be more volatility in the domestic market. In the power sector, China continues to add coal capacity due to the fear of repeat power outages, even though solar and wind had a strong year in 2022 and are expected to grow even more in 2023. Supply security will continue to dominate policy makers’ priorities, raising questions about the speed and scope of power market reforms.