Is China’s falling LNG demand a warning sign for global markets? With Wei Xiong

[00:00] Noah (host): This is Let’s Talk Energy, your go-to podcast for smart energy insights. I’m your host, Noah Brener, and each week we’re bringing you an inside look at the dynamics shaping global energy markets through in-depth conversations with our own Rystad Energy experts, as well as some special guests. In today’s episode, we’re dissecting China’s natural gas sector and its impact on global markets for liquefied natural gas, or LNG. China is the world’s largest importer of LNG. But lately, the country’s demand for imported gas has cooled dramatically as industrial demand has sputtered. And it isn’t just cyclical factors like the economy: China has prioritized domestic gas production and is rapidly developing other sources of energy, including renewables, coal, and nuclear. All of these factors complicate the outlook for natural gas in China’s future energy mix—at a time when global gas markets are projected to flip into a surplus over the next few years, potentially putting downward pressure on prices. So how is China’s natural gas demand shaping up for 2026, and what impact might it have on global LNG markets? Has China’s push to increase domestic natural gas production paid off so far—and how much upside might there be for additional supply? Finally, what is the long-term outlook for natural gas in China’s mix, including as a transport fuel? And how is competition between natural gas and other forms of energy like coal and renewables evolving? To help us understand where China’s gas sector is today and where it could be headed, we’re joined from Beijing by Wei Zhang, vice president in our analysis division, who leads Rystad Energy’s coverage of gas and LNG in China. Wei, welcome to the program. Wei (guest): Thanks for having me, Noah. Noah: Let’s talk energy. How important is China’s LNG demand for global gas markets? And how did demand look through the end of last year—and do we have any early read on this year? Wei: China’s gas market—and especially LNG—definitely matters for the global market. China became the largest LNG importer from 2021 onward, only falling to second place in 2022 because of COVID impacts. It’s also the third-largest gas-consuming country in the world. So year-to-year changes can significantly influence global balances. In recent years, global markets have stayed relatively tight largely because of muted Chinese LNG buying and soft industrial gas demand in China. For 2026, we expect some recovery in China’s gas demand, but it will depend on how effective this year’s measures are. Noah: Let’s start with the basics: how much gas does China use, and where does it come from? Wei: Domestic production is the base supply—about 60% of total supply. Pipeline gas is around 18%, and a bit over 20% comes from LNG imports. Noah: And where does that gas go—what sectors drive demand? Wei: Industry is the largest sector—around 40% of total demand. It includes industrial fuel and chemical feedstocks used to produce fertilizers and other chemicals. Another ~33% is city gas: residential, heating, commercial, and transportation. And around 7% comes from the gas power sector. [00:04] Noah: Let’s talk about our forecast for 2026. You highlighted industry as the largest consumer—and we’ve seen plenty of headlines about China’s industrial outlook. How are we seeing 2026 in the base case, and is industrial demand the key variable? Wei: For 2026 we still need to watch industrial demand recovery. We expect some rebound, but it could be limited. There are headwinds from trade tensions that could weigh on external demand and impact manufacturer confidence and end-user demand domestically. So we’re looking at a limited recovery, and it will depend on policy effectiveness—how much end-user demand can be boosted—and on “anti-involution” measures meant to remove redundant capacity. Those legacy issues take time to resolve. Noah: Give me two scenarios—one upside, one downside—and which feels more likely. Wei: The main uncertainties are still industrial. If government policy measures are more effective, we could see an additional 4–5 bcm of incremental demand in 2026—that’s the upside. On the downside: we currently expect LNG truck economics to remain favorable in 2026, which could support sales and mileage. But if global crude prices change materially, it could shift LNG-versus-diesel economics for trucking. That could be a downside risk for transportation demand. Noah: Let’s turn to domestic gas production. It’s the biggest supply source, and China has prioritized increasing domestic production—including shale and other unconventional sources. What has that trajectory looked like, and could we see further growth? Wei: China is often framed as the biggest demand market, but it’s also one of the top gas producers globally. Over the past few years—during the 14th Five-Year Plan—we’ve seen strong growth in domestic production. Most of that growth came from unconventional gas rather than conventional: shale gas, coalbed methane (CBM), and tight gas, including in northern China. [00:08] Noah: Looking out over the next five years—do we think there’s further upside in domestic supply? Wei: In the past five years, growth was driven by policy support. Looking at 2026 and beyond, we expect policy support to remain, because energy security is still a priority. We expect strong growth to continue, but likely at a slightly lower rate than the previous five years. For 2026–2030, we still expect around 4–6% average annual growth. Noah: Does domestic supply generally displace LNG? What does that mean for LNG imports? Wei: In 2025, China’s LNG buying was weak—largely because of soft demand, especially industrial. But it was also curbed by strong growth in alternative supplies: domestic production and pipeline imports. In 2026, continued domestic production growth could still put downside pressure on LNG imports. Noah: What about pipeline gas—Russia is eager to send more into China. Are existing routes at capacity, and is there room to grow in 2026? Wei: Pipeline gas import growth should slow in 2026 compared with 2025. The Power of Siberia 1 pipeline has already reached nameplate capacity—38 bcm per year—so we expect slower growth, maybe only 3–4 bcm more in 2026. That could create some room for LNG imports to increase. [00:12] Noah: Let’s stick with geopolitics. We’ve seen Chinese buyers take advantage of distressed, sanctioned LNG cargos from Russia. Have those had a material impact on China’s gas market, and have they lowered prices meaningfully? Wei: The impact has been limited because volumes are limited—around 1 to 1.5 million tons total—versus China’s total 2025 LNG imports of about 69 million tons. Any impact was localized—mainly in southern China, especially Guangxi, where the terminal is located. For example, in late December, truck LNG or wholesale LNG prices in Guangxi were about $1–$2 per MMBtu lower than neighboring Guangdong. But after the northern sea route closed due to the ice season, prices in Guangxi and Guangdong converged. So price impacts were largely curbed by the closure of that route. Noah: Do we project opportunistic buying of sanctioned cargos to continue into 2026 in our base case? Wei: There are constraints: shadow-fleet size and the limited window when the northeast sea route is open—only a few months each year. So overall, we think volumes remain limited in 2026. Noah: Another geopolitical factor: tariffs. How has the U.S. tariff push affected flows, and how do we see it evolving? Wei: U.S.-origin cargos to China largely stopped from last February because China imposed about a 25% tariff on U.S. cargos. That tariff is still in place, and it doesn’t appear to be a focus in recent trade talks. So we expect the tariffs to continue in 2026. Unless the 25% tariff is fully canceled, we don’t expect that flow to return anytime soon—perhaps only after 2028, depending on policy changes. [00:16] Noah: China is contractually a major buyer of U.S. LNG. If those cargos aren’t going to China, where do they end up? Wei: In 2025, many cargos flowed to Europe or other destinations because the price economics were more favorable than importing into China. Even now, reselling to Europe often looks better than importing directly into China, so we still expect resales to continue in 2026 because of the tariff. Noah: Does the 25% tariff make U.S. cargos outright uneconomic in China—or is it just that the margin is better when you resell? Wei: Europe still looks better on total profitability. And whether importing to China is profitable versus spot LNG varies by month. For most months of last year, some imports were still economical relative to spot cargos into China, but more recently that profitability has disappeared and has moved into negative territory. It really depends on price trends. Noah: China’s LNG demand is often described as price-sensitive—buying spot when prices are attractive and pulling back when they’re not. At what price might we see opportunistic spot buying in 2026? Wei: The tipping point has fallen. In 2024, industrial players often cited $10–$11 per MMBtu. Last year they told me more like $8–$9 per MMBtu. Overall, Chinese buyers have become more sensitive to spot prices because supply in China has become more abundant—so there’s less incentive to buy spot LNG. [00:20] Noah: We’ve seen China upend the global oil market with crude stockpiling, helping put a floor under prices. Could we see something similar in natural gas—strategic or commercial stockbuilding—if prices are attractive? Wei: That could happen if the price economics are favorable. In recent years, if spot LNG prices fell below contracted cargo prices, companies could restock into LNG tanks at coastal import terminals. It depends on spot LNG versus contracted LNG prices. Noah: How much gas storage does China have? Is the storage network as developed as crude oil storage? Wei: Based on our tracking, China’s underground working gas capacity is around 40 bcm, plus capacity in LNG tanks at import terminals. In total, that’s roughly about one and a half months of China’s gas demand. Capacity has improved over the past decade—ten years ago it covered less than one month of demand. Noah: Looking beyond 2026—what is gas’s role in China’s energy mix out to, say, 2035? Wei: China’s gas demand is still on an uptrend and may only peak around 2040, so there’s still significant potential for China’s gas and LNG demand. We expect China to remain a growth driver for global demand through the mid-2030s. By 2030, China’s annual growth could still contribute around 20% of global demand growth. Noah: Does that mean China’s share of global LNG rises again—and do we see shifts in where China gets its gas? Wei: Last year, China’s slower demand reduced its LNG share—from about 20% in 2024 to around 15% last year. But going forward, we expect China’s share to rise again—potentially to around 24% by 2040. [00:24] Noah: Let’s talk pipeline gas longer-term—specifically Power of Siberia 2. Russia suggested Gazprom was ready to move ahead, while China’s comments sounded more conservative. How are you thinking about it? Wei: We’ve heard many updates—and rumors—about this mega pipeline, but key items still require time to negotiate, especially pricing terms. If we look at Power of Siberia 1, market players often describe its price level as very low. At delivery to China’s border it’s around $7–$8 per MMBtu, much cheaper than spot LNG. But you need to add transport to destination markets in China—for example, to Shanghai you add around $3, bringing total cost to about $10 per MMBtu. That level can be higher than some LNG contracts linked to Henry Hub or some new contracts linked to Brent. So price economics matter for Power of Siberia 2, and there’s still room for negotiation. Noah: Do we assume Power of Siberia 2 gets built in our base case? Wei: Recently, we removed flows from this pipeline from our base case long-term forecast. Unless there are breakthroughs, we won’t factor in its flows again. Noah: Let’s talk power-sector competition. Gas is a smaller but meaningful demand segment. Do we see gas becoming more of a baseload fuel in China’s power mix? Wei: That’s less likely, because gas power lacks cost competitiveness versus other options. For example, last year in some southern provinces, gas power breakeven prices were almost double coal power levels—and renewables were even cheaper, sometimes about half the breakeven prices for coal. That’s a major bottleneck for gas power development and is why utilization rates for gas power units have been low. So it’s unlikely to become baseload. [00:28] Noah: So if gas isn’t baseload, how do gas and coal interact in the power stack—especially for the portion gas is likely to serve? Wei: Given gas’s role and policy direction, we expect gas power to continue serving as a peak-shaving option—because it’s fast and flexible in response time. Right now it’s not a direct competitor with coal in China because they have different positioning: coal is baseload today, though hopefully over time it becomes more of a peak-shaving option too. Then coal and gas could both serve peak-shaving needs together. Until then, we don’t expect direct competition. Noah: Anything we haven’t touched on that you think is important to watch? Wei: A frequent question from outside China is whether there’s coal-to-gas switching in the power sector. In theory it exists, but in practice it doesn’t happen much because coal and gas have different roles and aren’t direct competitors. Coal’s share is being eroded more by renewables. As renewables expand and intermittency grows, China needs gas power for peak-shaving to offset fluctuations. At the same time, market players still benchmark gas power costs against coal power costs because coal remains the dominant baseload option. Noah: Wei, thank you so much for joining us. Really appreciate the conversation. Wei: Thank you very much, Noah. Noah: Let’s recap. China’s gas demand faltered in 2025 as the industrial sector slowed, but demand is expected to keep growing through 2040 and beyond. Unlike crude oil, domestic gas supply will continue to rise—driven by coalbed methane, tight gas, and shale—which could put further pressure on gas imports. In the longer term, gas is likely to maintain a key role in the power sector as a complement to China’s massive deployment of variable renewables like solar and wind. Thanks for listening to Let’s Talk Energy. This podcast is a Rystad Energy production, produced by Lara Rodriguez and B. Oak. Check out the show notes for further analysis on the topics we discussed today, and connect with us on social media—we’re Rystad Energy on all major platforms. While you’re there, please leave us a review, subscribe, and hit that like button. Keep up to date on our website, and if you’d like to send questions, reflections, or an idea for a future episode, email us directly at podcast@rystadenergy.com . Most importantly, don’t forget to join us next week for more Let’s Talk Energy.