European LNG imports set to hit record as Asian demand cools

European buyers are increasing their purchases of liquefied natural gas despite a significant rise in spot prices, a move driven by the need to secure winter supply as Asian importers reduce their demand. The shift in global trade flows has resulted in European nations paying a premium to secure cargoes that were previously destined for Asia. This development occurs against a backdrop of constrained supply from the Middle East and a reduction in Russian pipeline gas, leaving the European Union with limited alternatives for meeting its energy requirements.

Analysts indicate that Asian demand for liquefied gas is set to decline both this month and over the coming year. According to data from Kpler, September flows of LNG into Asian countries are estimated at 20.09 million tons. This figure represents a decrease from 22.27 million tons recorded a year ago and 22.25 million tons in the previous month. In contrast, European LNG imports are on track to increase to 7.98 million tons this month, with projections suggesting a further rise to 10.53 million tons in October. This upward trajectory is largely attributed to natural gas storage levels across the European Union remaining substantially below the five-year average for this time of year.

The cost of securing this supply has risen sharply. LNG was trading at $26 per million British thermal units in the week to September 11, with little prospect of a near-term decline. The price surge is linked to the closure of Qatar’s LNG export hub, with QatarEnergy reportedly seeking deals for U.S. liquefied gas to 2031 to compensate for lost local supply in long-term contracts. While the UAE is exporting some liquefied gas from the Persian Gulf, these volumes are insufficient to cover the loss of Qatari supply. The shortfall resulting from Qatar’s force majeure declaration was estimated at approximately 12.8 million tons annually by the country’s energy minister earlier this year. Although new U.S. capacity is expected to come online, the timing does not align with the immediate needs of importers ahead of winter, intensifying the competition for limited supply between Asia and Europe.

European buyers are effectively outbidding Asian counterparts, who are facing affordability constraints. Spot prices have increased by 150% since February, a period preceding the conflict between the United States, Israel, and Iran. The European Union is compelled to import as much LNG as possible because Norwegian gas imports are already at peak levels, Russian pipeline gas is excluded due to sanctions, and Russian liquefied gas is expected to face similar restrictions from January. Kpler expects annual imports this year to exceed last year’s record of 125.20 million tons. Over the first eight months of the year, imports stood at 117.01 million tons, with the remaining four months expected to see higher flows under the leadership of Brussels, albeit at higher prices.

The current situation reflects a strategic gamble made earlier in the year by European gas buyers, who delayed purchases for storage refilling in anticipation of a quick end to the Middle East conflict and a return of Qatari gas to markets. As the conflict persisted, the likelihood of such a resolution diminished, yet buyers continued to delay purchases until it became clear that LNG prices would not fall. This has left them with no choice but to buy at elevated prices, risking a potential price slump. A similar scenario occurred in the winter of 2022, when European gas companies rushed to secure supply, only for a mild winter and lower-than-expected demand to cause prices to drop, resulting in significant financial losses. However, analysts note that this outcome is less likely to repeat this winter, as European countries no longer have access to Russian pipeline gas, which provided a buffer in 2022.

In Asia, China is managing its LNG imports by limiting purchases from the spot market and relying on long-term fixed-price and oil-linked contracts. The country is also receiving substantial volumes of pipeline gas from Russia. This diversification strategy is helping to mitigate the impact of lost Qatari volumes for the rest of the world. Meanwhile, countries that can no longer afford to buy spot LNG are turning to coal and other sources of power generation. Conversely, EU members, which have shut down coal power plants and, in the case of Germany, nuclear power plants, are forced to continue purchasing spot cargoes despite the growing financial burden.