What China’s Energy Giants Expect From Russia’s War and Covid

(Bloomberg) -- The world's biggest energy consumer is being buffeted both inside its borders and out. China's worst outbreak of Covid-19 since the pandemic began is slashing demand for fuel as cities lock down to slow its spread. Meanwhile, global prices for oil, gas and coal are soaring after its geopolitical ally invaded Ukraine and became the target of Western sanctions.

China's largest energy firms, many of them state-owned, are being forced to deal with the fallout from both crises. This week, executives from several of the companies discussed the challenges during their first-quarter earnings calls. Here's a sampling of what they said.

Sinopec

China's top oil refiner said fuel demand has fallen as cities tell their residents to stay home. But it's confident that the measures are working, and that restrictions will be lifted in time to allow demand to rebound to normal by the end of the second quarter.

Based on the company's experience after the 2020 outbreak, and the SARS epidemic in 2003, pent-up consumption will be strong, officials said. Sinopec is keeping fuel inventory levels high to capitalize on so-called “revenge” travel when it happens.

Cnooc

China's biggest offshore driller was cagey when it came to reports that it's part of a consortium eyeing Russian oil and gas assets that Western majors are trying to get rid of.

The company said it doesn't have any current plans to make such investments, and stressed that approvals for any deals would depend on the government due to their sensitive nature.

Cnooc also sidestepped reports it's looking to divest assets in North America and Europe, saying any decisions it makes on its portfolio are based on operational factors and not geopolitics.

ENN Energy

One of the country's largest natural gas utilities said consumption growth has slowed thanks to the travel curbs, with the liquefied form of the fuel used to power trucks taking a particularly sharp cut.

Its industrial customers have proved more resilient, though, especially ones in isolated parks or with large enough facilities to install a “closed-loop” system of operating that doesn't expose workers to the general population.

Jinko Solar

The world's third-largest producer of solar panels said Europe's efforts to reduce reliance on imports of Russian fossil fuels will boost demand for solar energy as soon as this year. Newly added global capacity could rise to 250 gigawatts, the company said, compared with the 184 gigawatts recorded by BloombergNEF last year.

“The Russia-Ukraine war has highlighted the need for solar energy, with incremental demand expected within the year and further steady increases over time,” Chief Executive Officer Xiande Li said.

Huaneng Power

Lockdowns are reducing power demand and disrupting construction of new wind and solar developments, according to company officials. Renewable construction will likely pick up pace late in the second quarter as Covid measures begin to ease, they said.

Shenhua Energy

China's biggest coal miner said pandemic curbs are sapping demand, while outbreaks have had little impact on production, which has eased supply pressures in the world's top market.

“The coal market supply and demand is changing from a tight situation to an overall stable and slightly loose situation,” according to CEO Lv Zhiren.

Looser conditions in China, which consumes half the world's coal and is its biggest importer, could help bring relief to a global market that has seen prices soar to record levels after Russia invaded Ukraine.

With assistance from Bloomberg