LNG demand gas production in China and India could regain momentum once international prices return to more affordable levels. Executives from some of Asia’s leading gas companies believe the current decline in consumption is primarily due to the sharp rise in fuel prices, rather than a structural change in these markets.
For now, supplies from the Persian Gulf remain limited by the conflict in the Middle East and the difficulties in transporting liquefied natural gas through the Strait of Hormuz. This situation has reduced the availability of shipments from Qatar and the United Arab Emirates, increasing pressure on the Asian spot market.
LNG demand falls amid high prices in Asia
India is showing a high sensitivity to price fluctuations. Deepak Gupta, president of GAIL, explained during Gastech in Bangkok that numerous industrial sectors in the country reduce their consumption when gas ceases to be economically competitive compared to other energy alternatives. The situation is also affecting China. PetroChina International believes that the current reduction in purchases is a temporary effect caused by high international prices.
Luo Yizhou, CEO of PetroChina International, noted that demand could recover once the LNG return to a range considered normal, below $10 per million British thermal units (MMBtu). Recent price trends illustrate the pressure buyers are facing. Shipments for October delivery to Northeast Asia have remained above $25 per MMBtu, well below the level many Asian consumers consider competitive.
The Strait of Hormuz continues to limit LNG supplies
Furthermore, the disruption of flows from Qatar and the United Arab Emirates continues to affect the market balance. Unlike oil, LNG presents greater technical difficulties for ship-to-ship transfers due to the conditions required to handle the fuel at extremely low temperatures.
Some shipments reportedly managed to leave the Persian Gulf through transfer operations carried out outside the Strait of Hormuz, however, these volumes are still insufficient to offset the reduction in supply recorded during the last few months.
As a result, Asian buyers have had to compete more intensely for shipments from other regions; this pressure recently drove LNG spot prices in Asia to levels not seen since 2022.
China prioritizes cost and security in its gas purchases
Meanwhile, the country asia continues to develop infrastructure to increase the flexibility and security of its energy system, cost, reliability of supply, and the ability to diversify sources will remain key factors in its purchasing decisions for PetroChina, however, Yaoyu Zhang, Global Head of LNG and New Energies at PetroChina International, believes that Chinese consumption growth could proceed at a more moderate pace than before the Russian invasion of Ukraine, this outlook reflects a different market than in previous years, the country asia maintains extensive infrastructure for importing LNG, but its buyers also have the capacity to reduce their exposure to the spot market when international prices rise rapidly.
India can recover consumption when LNG becomes competitive
A similar dynamic is observed in India, demand remains strong, although many industrial consumers can turn to alternative fuels when gas prices exceed certain levels, this flexibility explains why purchases can drop rapidly during periods of high volatility and recover once the market stabilizes. GAIL believes the current decline in consumption is temporary and expects a normalization as LNG availability increases again. Furthermore, the projected growth in global liquefaction capacity over the next few years means that increased supply would allow for more cargoes to be available to Asian buyers and could help alleviate price pressures.
Asia retains potential to increase its LNG demand
Finally, the perspectives presented at Gastech suggest that Asia maintains significant growth potential for liquefied natural gas (LNG). However, the speed of this expansion will largely depend on price trends. China and India are markets capable of absorbing large volumes of LNG, but they also have alternative energy sources when this fuel loses competitiveness. Therefore, a sustained recovery in flows from the Middle East, along with the addition of new international supplies, could once again alter the market balance, if prices return to levels close to those seen before the current crisis, Asian LNG demand could begin to recover some of the lost ground.
Source: Oil Price
Photo: Shutterstock
