China’s expanding gas market raises concerns about future LNG demand

China Accelerates Domestic Natural Gas Output

China is rapidly increasing its domestic natural gas production, reshaping its role as a major LNG consumer and importer. This swift growth is prompting analysts to update their LNG demand projections for the country.

Less than a decade ago, China faced significant challenges in developing its own gas resources, particularly from shale formations, due to geological differences compared to U.S. shale basins. Energy companies struggled to achieve commercial-scale output. Today, however, China’s leading state-owned oil and gas firms are achieving record levels of gas extraction and reporting fresh shale gas discoveries.

According to Kpler, citing official data, China produced 22.1 billion cubic meters of natural gas in November last year, marking a 7.1% year-on-year increase. This surge was largely attributed to unexpectedly rapid shale gas development in the Sichuan Basin. Kpler projects that China’s total gas production will reach 278.5 billion cubic meters this year, and 263 billion cubic meters in 2025, driven by expanding output in the Sichuan and Shanxi regions.

As domestic production climbs, China’s reliance on imports is diminishing, even as the country continues to prioritize natural gas for lowering emissions. Last year, China not only increased its domestic gas output but also saw a notable drop in LNG imports, which fell to their lowest level in six years after twelve consecutive months of decline. Although imports picked up slightly at year’s end, the overall decrease remained. Kpler forecasts that Chinese LNG demand will contract further this year, with rising shale gas output expected to displace around 600,000 tons of LNG, bringing total demand down to 73.9 million tons.

While 600,000 tons may seem modest in a global market where U.S. LNG exports alone exceeded 100 million tons last year, it highlights China’s ongoing efforts to reduce its dependence on foreign energy. This shift carries significant implications for global energy markets, which have long counted on China as a primary source of demand.

The anticipated reduction in China’s appetite for natural gas—and consequently LNG—could disrupt plans for new LNG capacity and put downward pressure on prices, potentially squeezing producer profits. Many analysts believe that the wave of new LNG supply, mainly from the U.S. and Qatar and expected by the decade’s end, could lead to an oversupplied market by 2030, further weighing on prices.

Shifting Dynamics in the LNG Market

Competition within the LNG sector is intensifying. China has halted imports of U.S. LNG amid ongoing tariff disputes initiated during President Donald Trump’s administration. Meanwhile, Russia is delivering record amounts of LNG to China, albeit from two sanctioned facilities. Although these volumes are not yet substantial, they demonstrate that energy trade often finds a way when the price is favorable.

Increasing Russian LNG shipments to China could also influence market forecasts, especially as the European Union prepares to fully ban Russian energy imports, including gas, next year. Currently, the EU is Russia’s largest LNG customer, but once the ban is in place, these supplies are likely to be redirected to markets like China and India.

At the same time, pipeline gas deliveries to China are set to rise this year, further reducing the need for LNG imports. Kpler estimates that gas transported via Russia’s Power of Siberia pipeline could increase by 8 billion cubic meters compared to 2025, contributing to an overall 8% growth in pipeline imports to 80.7 billion cubic meters. However, pipeline gas from Central Asia is expected to decline by 4 billion cubic meters in 2026, as those countries retain more gas to meet their own growing demand.

Looking Ahead: China’s Energy Strategy and Global Impact

China remains committed to expanding its domestic natural gas production, with reducing reliance on imports a key objective for policymakers. Nevertheless, this process will be gradual and is bound to encounter limits. Until then, import decisions will largely be influenced by price, with potential ripple effects on the global LNG market.

It’s important to note, however, that the global impact of China’s changing gas demand is unlikely to match the influence of its oil consumption trends. Many other countries continue to show strong demand for LNG, particularly if prices decrease due to increased supply or reduced Chinese imports resulting from higher domestic output.

By Irina Slav for Oilprice.com

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