China’s COVID-19 lockdowns and ensuing economic crisis have inadvertently been a lifeline for an entire continent thousands of miles away.

Since the invasion of Ukraine eight months ago, Europe has been scrambling to replace Russian energy imports and tackle soaring energy prices. Before the war, Russian natural gas accounted for 40% of European consumption.

But China’s struggles have eased some of the pressure. Shuttered factories and a shrinking economy mean China doesn’t need natural gas as much as it used to and can therefore resell some of its excess liquefied natural gas, or LNG, to Europe.

“China’s zero-COVID policy has perhaps been one of Europe’s best allies in this current energy crisis, as Europeans have had to rush to get LNG to replace Russian volumes,” Simone Tagliapietra , senior researcher specializing in energy and climate policy at Brussels-based think tank Bruegel, said Fortune.

But with its energy crisis likely to last more than a winter, Europe is beginning to worry about what China will do next. A harsh winter in China or an improving economy next year could lead to a further increase in its energy demand and leave Europe in the cold.

The stakes are enormous for Europe, whose own economy and citizens hang in the balance in the face of energy shortages. Any small change in energy supplies, more or less, could have a huge impact on prices, each country’s increasingly fractured domestic politics and the future of the continent.

China’s natural gas consumption is already expected to increase by 5% in 2023, according to the International Energy Agency. And while much of this depends on the direction of China’s economy and its zero-COVID policies, Europe is starting to plan ahead.

“Over the past few weeks, it has been realized that for Europe the current winter could be okay,” Tagliapietra said, citing reduced energy demand on the continent due to high prices. and a warmer than usual winter forecast.

But next year could be a different story for Europe if China’s industrial engine picks up again. The repercussions would be “very significant”, Tagliapietra said.

“The scenario for next year for Europe is definitely going to be more complicated if the situation in China improves,” he said.

The gas roller coaster in China

In 2021, China overtook Japan to become the world’s largest importer of LNG, bringing in 79.5 million metric tons during the year, said Ryhana Rasidi, natural gas analyst at the analytics firm Kpler raw materials. Fortune.

But this year, Chinese LNG imports have slowed considerably. Over the summer, they fell 14% due to COVID shutdowns and slowing economic activity, the biggest drop since China started importing LNG in 2006, according to the consultancy. in Wood Mackenzie energy.

China’s LNG imports are expected to drop to 65.6 million metric tons by the end of 2022, Rasidi said.

Falling demand in China has opened the door for European nations to pounce on leftover global LNG. European countries have signed big deals this year with suppliers such as the United States and Qatar.

Europe has also been able to tap China for some of its excess imported LNG. Given the high level of natural gas prices in the spot market this year, Chinese energy companies have often been able to resell their supply at a huge profit.

Between January and August 2022, Chinese energy companies offered around 30% more LNG for resale on the global market than they purchased during the same period, according to the IEA.

But anticipating economic growth and preparing for the winter heating season, the Chinese government has reportedly asked energy companies to stop reselling LNG overseas and save it for domestic use, Bloomberg reported this week, citing inside sources.

Europe’s long-term challenge

For this winter, any increase in China’s energy consumption, even a cold winter that drives up demand, should not hurt Europe much, given that the continent’s natural gas reserves are already at more than 90% of their capacity. This is enough for several winter months.

Another potential silver lining for Europe is that, while the future of economic growth in China is uncertain, the chances of Chinese President Xi Jinping lifting the country’s zero-COVID policy are extremely low, researcher Erica Downs principal specializing in Chinese energy markets at Columbia University’s Center on Global Energy Policy, said Fortune.

“I see that as the key factor,” she said. “For energy demand to pick up, we would have to see an easing of zero-COVID, and that won’t happen overnight; the government is not going to back down.

But with leaders recently emphasizing energy security, China’s energy appetite is likely to be a bigger, long-term competitiveness issue for Europe.

Europe will have to fill its energy reserves again next summer, but with China stopping its resale of excess LNG, European countries would be even more “under pressure” than this year according to Rasidi de Kpler, adding that a cold winter in China this year could push the country to buy more natural gas on the spot market, depleting global supplies for next year.

China expects natural gas to play an increasing role in the coming years. Its share of the country’s overall energy consumption is expected to fall from 8.7% in 2020 to 12% by 2030, before increasing “significantly” by 2035, the official said last year. Zhu Xingshan Energy under the government’s coal phase-out plan. .

Part of that will involve expanding domestic natural gas production, Columbia’s Downs said. But it will also force China to continue to increase its LNG imports as well as pipeline imports over the next few years.

“Scaling up production is history, but they won’t be able to meet all of their needs through domestic gas production. So that means importing,” she said.

European authorities have also acknowledged the risk of China playing off the stability of the continent’s energy market on weak energy demand in China. After reducing its dependence on Russian gas, Europe could instead become dependent on weak energy demand from China.

In a recent presentation on the state of the European Union electricity market, the Agency for the Cooperation of Energy Regulators (ACER) informed EU ministers that “the decline in demand for volumes of LNG due to COVID in China is currently absorbed by Europe”.

“This raises questions as to when Chinese LNG demand might return to normal growth rates,” he continued.

For Europe, the looming reality is that, as dire as this year’s energy crisis is, next year’s is likely to be worse, as Russian natural gas supplies dry up even further and competition for electricity increases. energy with China is helping to limit global supplies.

“It is recognized that we are now entering a situation where the most difficult part of the task is next year,” said Tagliapietra of Bruegel.

“China will be a huge factor in our energy security over the next 12 months, and that’s something that I think before we didn’t focus on at all,” he added.