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Declining Chinese LNG Imports May Alleviate Europe’s Energy Challenges

by Krystal

China, the world’s largest importer of liquefied natural gas (LNG), has recently reduced its spot LNG purchases as Asian prices reach their highest levels of the year. After several months of securing cheaper LNG supplies, China’s natural gas inventories are now sufficiently stocked, allowing the country to pull back from buying more expensive spot cargoes.

This decline in China’s LNG imports could have a positive effect on Europe, which is facing a rapid depletion of its gas inventories. The continent is grappling with a cold winter, low wind speeds, and growing concerns about energy security, especially with the upcoming expiration of the deal allowing Russian pipeline gas to flow to Europe via Ukraine.

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Over the past month, China’s LNG imports have decreased, trending 12% below the average for the period from 2020 to 2023. Vessel-tracking data compiled by Bloomberg shows a significant slowdown in imports, especially compared to earlier in the year, when China had been importing more LNG than usual.

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The key factor behind this shift is the rising price of spot LNG in Asia. In recent weeks, the price for LNG delivered to Northeast Asia in January has surged to $15.00 per million British thermal units (MMBtu), the highest level seen this year. With China well-stocked with natural gas, it has been reluctant to purchase LNG at such elevated prices.

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China’s total natural gas imports, including both pipeline gas and LNG, fell by 1.4% in November compared to the same month in 2023, according to official data from China’s General Administration of Customs. While Chinese crude oil imports rebounded in November due to lower prices and a government mandate to build up stockpiles, high spot LNG prices led to a decline in overall natural gas imports.

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Since the start of the year, spot LNG prices in Asia have climbed by about 30%. As a result, some Chinese LNG buyers have started to offer or resell cargoes. For instance, CNOOC Ltd has put up an LNG cargo from Australia for sale in February, and PetroChina has sold several shipments over the past month, according to traders.

If China continues to reduce its spot LNG purchases due to high prices, this could ease Europe’s ongoing energy supply concerns. In recent weeks, European natural gas prices have surged to their highest levels in a year, driven by cold weather and low wind speeds across much of northwestern Europe.

Europe has been depleting its gas inventories at the fastest rate since 2016, as demand increases with the colder temperatures. The continent is particularly nervous about the end of Russian pipeline gas deliveries after December 31, which adds further pressure on energy markets. The competition for spot LNG between Europe and Asia has also contributed to rising gas and electricity prices in Europe.

However, if China, the largest LNG buyer in Asia and globally, continues to stay out of the spot market due to high prices, it could help alleviate some of Europe’s supply and price pressures. This shift in China’s purchasing behavior may offer Europe a much-needed break in the battle for LNG supply.

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