China to slash winter gas purchases easing Europe’s supply pressures

China's liquefied natural gas (LNG) importers will stay out of the spot market this winter as demand growth has skidded to the slowest since 2002, meaning the world's top importer of the fuel will likely avoid competing with crisis-hit Europe for supplies.

That reduced demand means China should yield its top importer title back to Japan this year, easing pressure on the global market and offering much-needed relief to Europe, which is scrounging for cargoes after top supplier Russia cut pipeline gas flows amid the Ukraine crisis, Reuters reported on October 12.

China's total LNG imports are expected to post their first major annual decline since 2006, with estimates from consultancies JLC, ICIS and Rystad Energy ranging between 65 million to 67 million tonnes. That would be down from a record 78.9 million tonnes in 2021, according to data from China's General Administration of Customs.

Fourth-quarter shipments may fall by one-fifth from a year earlier to 22.4 billion cubic meters, or 16.4 million tonnes, according to estimates from JLC analyst Ricki Wang.

Independent gas distributors ENN Group and JOVO Energy plan to cut their LNG imports, company sources said. ENN and state-run Sinochem are expected to continue diverting term cargoes to Europe or other North Asian buyers, according to four traders that participate in the market.

"China basically stopping bidding for a spot is great because (there is) one less party to fight for cargo," said Alex Siow, ICIS' lead Asia gas and LNG analyst.

Reducing its demand for gas means China is over-contracted for LNG, "and this is big news for the market because being over-contracted means that China is essentially growing the spot pie," he said, adding this was good news for Europe as "Europe is basically just going for the spot right now."

Analysts at JLC, SIA Energy and Rystad Energy expect China's overall gas consumption to hold steady or even decline by 2% to around 370 billion cubic meters this year, the slowest growth since at least 2002.

LNG imports also fell after Asian spot prices surged this summer, eventually peaking at a record $70 per million British thermal units (mmBtu), as Europe drew cargoes away from the region to refill inventories in the wake of the Russian disruptions.

With Chinese wholesale prices capped at about $20 per mmBtu, that would mean losses of over $100 million per cargo.

China is also pumping more gas domestically and receiving more from Russia both by pipeline and as LNG shipments.

JOVO Energy expects to cut imports by 20% this winter from a year earlier, a senior company trader told Reuters.

"We are not making any spot purchases this winter, but rather focusing on shipping in short-term cargoes signed last year and term cargoes," he said.