Reduced Chinese LNG demand raises prospect of lower gas prices in Germany next winter

Lower liquefied natural gas (LNG) purchases by China may become a boon for Germany’s supply of the fossil fuel in the coming winter season, business daily Handelsblatt reported. In the second winter after Germany’s formerly most important gas supplier, Russia, halted supplies, the country might be able to cover its gas demand with LNG purchases on the global market at lower prices, as Chinese demand is likely to drop to 73 million tonnes of imports in 2023, wrote the newspaper. This is compared to 79 million tonnes in 2021, data by analyst company ICIS had shown. The difference is a significant share of Germany’s total LNG demand. Already in 2022, China’s LNG demand was considerably lowered due to the country’s strict pandemic measures and reduced economic activity in national lockdowns. If China had made a full return to pre-pandemic demand this year, it might have unilaterally consumed all additional LNG supply from capacity established during the past year, for example from Africa or the U.S., according to the International Energy Agency (IEA). “Now there are signs that the situation is easing,” Handelsblatt wrote, citing higher Chinese pipeline imports from Russia and slower-than-expected economic recovery in China as the main reasons behind lower demand for shipped LNG. However, the ICIS analysts add that the weather could still undermine current predictions, meaning that a cold winter in both Europe and East Asia could still result in a scramble for available LNG supply.

The energy crisis hit Germany especially hard due to the extreme price hike for natural gas resulting from Russia’s war on Ukraine. Germany was able to avoid a worst-case scenario of gas rationing and blackouts in the winter 2022/2023, not least due to companies and citizens greatly reducing their gas consumption, in combination with a comparatively mild winter. To prepare for the coming winter, the German government has increased pipeline supplies from other countries, fast-tracked the installation of domestic LNG import infrastructure and set minimum filling levels for its gas storage units.