Europe’s gas storage levels have fallen to an alarmingly low level, with storage at just 34% capacity this week. In Germany, the situation is even more critical, with levels dropping to 29%. However, LNG imports are expected to rise, and prices might not spike as they typically would—thanks to a slump in China’s demand for liquefied natural gas (LNG).
Recent data from Kpler revealed that China’s LNG imports had dropped to their lowest level in five years, totaling just 4.5 million tons. This decline is due to several factors, including milder winter temperatures, China’s well-stocked gas inventories built since the 2017 gas shortage, and slower industrial activity. Additionally, China’s response to U.S. tariffs, specifically a 15% import tax on U.S. LNG, has also contributed to the decline.
New data from Kpler, cited by Reuters, suggests that China’s quarterly LNG imports will be 22% lower than last year. This reduction will benefit Europe by making more LNG available for the continent, which continues to face energy security challenges despite efforts to reduce reliance on fossil fuels and increase domestic wind and solar energy production.
In the meantime, Europe is seeking to diversify its LNG supply due to rising tensions between Washington and Brussels, as well as various European capitals. A recent report by Drewry Research indicates that Europe will likely strengthen its relationships with other LNG suppliers, particularly from Africa and Qatar. The report also suggests that Europe will remain highly dependent on LNG imports in the coming years, with U.S. LNG producers continuing to be a key supplier. This is partly due to the proximity of Gulf Coast LNG plants to European import terminals, as well as the convenience of the spot market, where U.S. sellers offer their LNG, and European buyers eagerly snap up cargoes when demand rises.
The EU’s joint gas procurement initiative, launched after the 2022 gas crisis, has seen limited success. A report from the Financial Times last September revealed that the program only covered about 2% of the EU’s total gas demand. Nonetheless, the EU has described the scheme as “hugely successful” and has already launched another round of joint gas bids for the coming years, spanning the next five years to ensure long-term supply stability.
As long as China’s LNG imports remain low, European buyers have a unique opportunity to secure long-term contracts for LNG. In the short term, Europe is likely to avoid the steep price hikes typically seen during peak demand periods. According to Reuters, Europe will need to purchase an additional 20 million tons of LNG this year to replenish its low gas inventories, translating to about 250 LNG cargoes. Thanks to China’s reduced demand, these cargoes will be more accessible to European buyers.
However, Europe cannot afford to be complacent. China’s reduced LNG imports may be temporary, and historical data shows that LNG supply can be interrupted by technical issues or outages, tightening the market. Additionally, other countries with growing LNG demand will likely begin bidding for available supplies, which could lead to price increases. As a result, energy costs in Europe will likely remain challenging despite efforts to lower them.
One way for Europe to reduce its vulnerability to fluctuations in LNG supply is to follow the “Japanese model,” which involves investing directly in overseas LNG projects and securing long-term supply contracts. However, critics argue that this model is incompatible with Europe’s transition to renewable energy sources like wind and solar. Still, the current situation, where China’s reduced LNG imports are seen as a boon for Europe, suggests that Europe may need to rethink its energy strategy.
It may be time for Europe to acknowledge that reliable power generation still heavily depends on natural gas, unless it turns to local coal—an option Germany has increasingly relied on since closing its last nuclear power plants. This shift presents challenges in light of the ongoing push for a greener energy transition. The Japanese model could offer a solution to help Europe avoid relying on unpredictable shifts in China’s LNG imports in the future.
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