China's LNG Demand Dwindles as Energy Mix Shifts

China's shift in energy mix has weakened the pillar of global LNG growth, according to a BOE Report. The country was once seen as a key driver of demand for liquefied natural gas (LNG), but its appetite is flagging. This is due in part to the ongoing Iran war and China's drive to prioritize domestic and pipeline gas and renewable energy.

The Iran war has triggered the second global LNG supply shock in four years, after Russia's Ukraine invasion in 2022. Analysts expect that even after Persian Gulf LNG supply is restored, China will take a more conservative approach towards LNG due to heightened energy security concerns.

Major financial institutions such as S&P Global Energy and Wood Mackenzie have cut their projections for China's LNG demand growth in the early 2030s by between 14 million and 22 million tons. Shell's latest outlook sees imports peaking at either 120 million tons by 2035 or near 150 million tons by 2040.

The weaker outlook for China's LNG demand erodes the need for up to 10% of new export capacity, which could impact producers' final investment decisions on new projects. The U.S.-China tariff dispute and Beijing's levy on U.S. LNG make direct purchase agreements unlikely, with Chinese buyers instead procuring from portfolio players who source LNG from various projects.