(The opinions expressed here are those of the author, a columnist for Reuters.)

LONDON - China’s imports of liquefied natural gas have sputtered this year, freeing up volumes that are helping Europe restock its rapidly dwindling supplies following a harsh winter.

China's LNG imports are expected to drop by 22% in the first three months of the year compared to 2024 to 15.8 million metric tons, the lowest level since 2020 for the period, according to analytics firm Kpler.

The decline is due to a confluence of factors, including reduced demand for residential heating in northern China driven by warmer weather, weaker industrial demand, higher domestic gas production and increased pipeline gas imports.

It might be tempting to connect this decrease in energy imports to the escalating trade war between China and the United States. President Donald Trump has imposed several rounds of tariffs on Beijing, which has retaliated by placing its own duties on U.S. imports, including a 15% tariff on LNG.

And U.S. LNG did make up only 1%, or 62,000 tons, of China’s total LNG imports in March, compared with 3%, or 188,000 tons, in January, Kpler showed.

But there is limited evidence to suggest that the burgeoning trade war has weighed on Chinese economic activity or energy imports – or even that it is responsible for the country’s reduced reliance on U.S. gas.

Rather, lower imports from the U.S. most likely stem from the fact that the vast majority of U.S. cargoes are sold without any restrictions on their final destination, a feature not offered by other suppliers such as Qatar or many Australian producers. This means that if Chinese traders do not require all the U.S. LNG volumes they committed to buy, they can resell these cargoes to third parties, such as European buyers.

JUST IN TIME

In any event, the sharp deceleration in Chinese buying comes at an opportune time for Europe, as winter is nearing its end in the Northern Hemisphere, meaning the region needs to refill its gas inventories.

The need is especially acute this year. A colder than usual winter coupled with the termination of the last major pipeline delivering Russian gas into the region has led to a sharp draw in Europe's stocks, which stood at just 33.9% of capacity by March 21, far below last year's 60%, according to data from Gas Infrastructure Europe.

Moreover, the incentives to store gas have been limited since November by a distortion in European gas prices, whereby forward gas prices for summer have been trading at a premium to next winter's prices.

The price inversion is largely a result of European Union rules requiring member states to fill storage to 90% of capacity by November.

All these factors sent benchmark European LNG prices to a two-year high of nearly 60 euros per megawatt hour by February 10, far exceeding Asian prices. This created an arbitrage window that many sellers exploited.

In fact, several cargoes originally headed to Asia in recent months have been diverted to Europe, highlighting how much liquidity and flexibility have risen in the global LNG market.

While European gas prices have come down sharply from their recent highs, both because supply has been diverted to the region and because of news that the EU might modify its storage capacity rules, Europe’s large imports have persisted. Traders thus appear to be betting on a change in European pricing dynamics.

LNG imports surged in March to 10.8 million tons, a record-high for the first three months of the year, according to Kpler. U.S. cargoes accounted for 54% of total imports.

The higher imports might already be reversing the decline in inventories, which posted on March 22 their first increase - of 0.06% - since the start of November, according to GIE data.

Europe has relied heavily on LNG imports since Russian pipeline gas supplies started being reduced in the run-up to Moscow's invasion of Ukraine in February 2022.

The sharp drop in inventories this year means the region will have to import an additional 20 million metric tons, or around 250 cargoes of LNG, compared with last year to meet the filling targets, according to Reuters' calculations.

The good news is that a large volume of new LNG supply is set to come online later this year and over the next few years, mostly from Qatar and the United States. This will add liquidity to the fast-growing LNG market, offering traders more arbitrage opportunities that could potentially help reduce regional price volatility.

But for now, the slowdown in China's imports is giving Europe a badly needed lifeline as it faces the challenge of refilling its depleted gas inventories by next winter.

** The opinions expressed here are those of the author, a columnist for Reuters. **

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(Reporting by Ron Bousso Editing by Mark Potter)


Reuters