China's liquefied natural gas (LNG) importers won't participate in the spot market this winter as demand growth has slowed to its lowest level since 2002. Due to the decreased demand, China could relinquish its position as the top importer of LNG to Japan in 2022, relieving pressure on the global economy and providing much-needed respite to Europe, which is scrambling for cargoes after key supplier Russia halted pipeline gas deliveries over the Ukraine conflict.
Chinese LNG importers have redirected several LNG cargoes to Europe due to the weak domestic demand. Due to a decline in demand, Chinese companies who entered into long-term contracts to purchase LNG from the United States are now selling the excess and profiting by hundreds of millions of dollars for every cargo. Energy companies in China, such as ENN Group, Sinochem, and Guanghui Energy, have been diverting their US LNG shipments to Europe and northeast Asian countries such as Japan and South Korea.
The trend of China diverting cargoes to Europe is expected to continue for at least the next few years. Given the savings on transportation costs that may be realized for cargoes redirected from the US. However, Europe cannot wholly rely on Chinese suppliers to meet its energy needs due to China's limited ability to export more gas to Europe compared to other sources such as Russia. Additionally, as China's economy picks up steam, the scenario could change, leaving Europe dependent on China for its gas at higher rates.
In 2021, China was the world's fourth-largest gas producer after the United States, Russia, and Iran. However, it was the third-largest gas consumer after the United States and Russia. While the US and Russia were net exporters, China is becoming the world's largest gas importer due to its growing reliance on imports to fulfill its needs. In 2021, 45% of the nation's domestic gas demand was met by imports, up from 34% in 2016 and 21% in 2011.
According to the National Bureau of Statistics, China's gas production climbed by 6% in the first eight months of 2022 compared to the same period in 2021. Despite government attempts to increase domestic production, China's reliance on imported gas is growing, posing a growing threat to the country's energy security.
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