China's cheap domestic gas curbs LNG buying, easing Europe's winter squeeze

Falling domestic gas prices are curbing China's appetite for seaborne LNG and could leave more cargoes available to Europe this winter, Bloomberg reported on November 9.

The national average price of trucked LNG in China fell to the equivalent of $21.97 per million British thermal units (mmBtu) on November 9, about $9.70 below JKM futures, according to pricing agency GasTank, after some liquefaction plants near inland fields cut offers sharply. State-backed energy companies are finishing their winter stockpiling and large withdrawals from underground storage are due to start in the week of November 16, which makes extra imports uneconomic for many buyers with global spot prices near a four-year high.

"When costs get too high, demand drops," said Huang Qing, a director at GasTank.

A China that stays out of the spot market takes the edge off the bidding war Europe feared going into the heating season. EU storage peaked at 74.96% on October 27 and stood at 74.56% on November 1, the lowest for the time of year in more than a decade, after inventories hit a record mid-October low and the Institute for Energy Economics and Financial Analysis warned of a 14bcm winter shortfall. With the Middle East conflict cutting Gulf supply, the gas crisis has been a contest between Asian and European buyers for the same flexible cargoes. Weaker Chinese demand could also narrow Asia's price premium over Europe.

China National Petroleum Corp (CNPC), the country's biggest gas supplier, expects weak demand to leave the domestic market in surplus this winter. It forecasts that Asian spot LNG could average as much as $30/mmBtu, well above the roughly $22 that Chinese industrial users can afford. State-backed China Petrochemical News projects LNG imports will fall by 3.8-7.5% this winter from a year earlier, citing weak industrial activity, high gas costs and new-energy vehicles displacing LNG-fuelled trucks.

The pullback is part of a longer slide. China is on course to lose its place as the world's largest LNG importer to Japan in 2026, with consultancy ICIS forecasting Japanese imports of 62mn tonnes against 61mn tonnes for China. Spot prices for northeast Asia hit $29.30/mmBtu in mid-October, almost three times their level before the conflict began in late February.

Beijing is leaning on coal, unconventional gas and Russia to cover the gap. Coalbed methane output has hit records in Shanxi, the top coal-producing province, and a long-shelved coal-to-gas project in Liaoning started deliveries in November. Russia expects to pipe 39bcm to China through Power of Siberia in 2026, above the line's contracted 38bcm, while Chinese purchases of Russian LNG rose 47% to 8.8mn tonnes in January-October, including cargoes from the sanctioned Arctic LNG 2 plant.

Beijing has nonetheless told LNG terminal operators to keep tanks about 80% full into the winter as a supply-security precaution, and a cold snap in northern China would bring its buyers back to the spot market quickly.