Weak Chinese LNG Demand Eases European Gas Pressure

Overview

This report discusses why the European gas market has only priced in a relatively limited risk premium amid disrupted LNG shipping through the Strait of Hormuz. Goldman Sachs argues that the key buffer is weak Chinese LNG demand: lower imports in Asia, especially China, are keeping European LNG imports relatively resilient for now, buying Europe time.

Core views

The core view is that current European gas prices are underpricing the risk of a sustained supply disruption. China, helped by a warm winter, improved storage capacity, and comfortable inventories, has become more price sensitive; when Asian LNG prices rise, it reduces imports and resells some cargoes, shifting more of the shock onto Asian importers rather than Europe. But as Chinese weather normalizes and Asian LNG prices remain above European gas prices, some Atlantic Basin supply may flow back to Asia, weakening Europe’s buffer. If Hormuz LNG losses remain around 300 mcm/d, well above China’s 68 mcm/d import shortfall, Europe may need to induce demand destruction via higher prices.

Analysis framework

The report uses regional LNG import deviations, route redirection, price spreads, and inventory/weather factors as its main thread, comparing LNG flow changes in Northwest Europe, China, and the rest of Asia, and combining JKM-TTF spreads, loading data from the United States, Nigeria, and Trinidad, and Hormuz shipping flows to judge the direction of supply reallocation.

Methodology notes

• commodity_market_balanceLNG supply-demand balance and regional reallocation

  Explains price risk premia through supply disruptions, regional import shortfalls, resales, and rerouting.

  The report compares Hormuz supply losses with China’s import shortfall and Europe’s import outperformance to judge whether current prices are sufficient to balance the market.

• spread_analysisJKM-TTF spread analysis

  The premium of Asian LNG prices relative to European gas prices affects cargo flows.

  When JKM is stronger relative to TTF, Atlantic Basin suppliers have more incentive to divert cargoes from Europe to Asia.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• TTF natural gas

  European gas price benchmark, directly reflecting the supply risk premium.

  Strengths

  European LNG imports remain resilient, with near-term pressure cushioned by weak Chinese demand.

  Weaknesses

  If LNG disruptions persist, current prices may not be enough to trigger the required demand destruction.

  Comparison

  The report believes TTF may need to test EUR 75-100/MWh under a sustained disruption scenario.

  Risks

  Prolonged Hormuz disruption, cargoes shifting back to Asia, and rising winter heating demand.

• JKM Asian LNG

  Asian LNG prices influence cargo flows in the Atlantic Basin.

  Strengths

  The premium over TTF can attract cargoes from the United States, Nigeria, Trinidad, and elsewhere to Asia.

  Weaknesses

  High prices suppress spot demand from price-sensitive buyers such as China.

  Comparison

  The JKM-TTF spread still broadly supports redirecting some cargoes from Europe to Asia.

  Risks

  A recovery in Chinese demand or an increase in spot procurement could intensify competition for European supply.

• China LNG imports

  A key buffering variable in the current global LNG balance.

  Strengths

  A warm winter, ample inventories, and reselling behavior temporarily released cargoes to the international market.

  Weaknesses

  Once weather returns to normal, the heating-demand gap may partially close and imports could rebound month over month.

  Comparison

  Year to date, China LNG imports are 20% below the average for the 2022 lockdown year.

  Risks

  Demand recovery, lower inventories, or falling prices could change China’s purchasing behavior.

Key data

• Disrupted Hormuz LNG flow80 mtpa / 300 mcm/d / 19% of global LNG supplyIncludes a 13 mtpa long-term supply loss from Qatar LNG.
• March Northwest Europe LNG imports above expectations33 mcm/d / 1.2 Bcf/d / 9 mtpaEurope’s import resilience is an important reason for the low risk premium.
• March China net LNG imports below expectations68 mcm/d / 18 mtpaThe import shortfall is larger than the surprise increase in Northwest European imports.
• China LNG import resales contribution34 mcm/dAbout 50% of China’s import shortfall.
• Potential TTF upside scenario75-100 EUR/MWhIf the current-scale Hormuz supply shock continues beyond April, the report thinks TTF could test this range.
• Voyage time from the United States to Asia35 daysLonger than the roughly 13 days from Qatar to Asia, which partly explains China’s import gap.

Impact & implications

For investors, weak Chinese demand is reducing the immediate pressure on the European gas market in the short term, but this is more a time buffer than a structural solution. If Asian demand recovers, cargoes shift from Europe to Asia, or the Hormuz disruption persists, upside risk to European gas prices will re-emerge and could affect power markets, industrial fuel switching, and expectations for energy inflation.

Risks

• The disruption to LNG shipping through the Strait of Hormuz lasts longer than the market currently expects.
• Once Chinese weather and heating demand normalize, LNG imports rebound month over month.
• The JKM-TTF spread continues to pull Atlantic Basin cargoes from Europe to Asia.
• There is limited time to replenish inventories before Europe enters the next winter, and higher heating demand could amplify supply pressure.
• The current European gas risk premium is too low; if the supply gap is not absorbed by weaker Asian demand, prices could reprice quickly.

What to watch

• Whether LNG vessel throughput through the Strait of Hormuz and the 4-day moving average flow recover.
• China LNG imports, resales, and inventory changes.
• Whether weather in northeastern China remains near normal and heating demand resumes.
• Changes in the JKM-TTF spread and in the destinations of cargoes loaded in the United States, Nigeria, and Trinidad.
• Whether Northwest European LNG imports continue to exceed expectations.
• Whether TTF moves closer to the EUR 75-100/MWh range.