NextFin News - China's imports of liquefied natural gas are set to fall for a second straight month as spot prices more than doubled since February, forcing the world's largest LNG buyer to defer purchases and putting its top-importer crown at risk. The Japan-Korea Marker, Asia's benchmark for spot physical LNG, closed at $26.08 per million British thermal units on September 28 — up 132.86% from a year earlier and 14.86% over the past month, according to market data.
The pullback is the clearest sign yet that the supply shock triggered by the war in the Middle East is doing what the textbook says it should: destroying demand at the margin. August deliveries fell 18% year-on-year to around 5.2 million tons, a stark reversal from the year-on-year gains logged over the previous three months, when Chinese buyers rushed to refill inventories ahead of peak summer power demand. September is on track to extend the decline, with Asia as a whole heading for its weakest September import volume since 2018 — roughly 20.09 million tons, down from 22.27 million tons in the same month a year earlier.
The central question is not whether high prices are biting — they clearly are. It is whether the bite is temporary, a cyclical pause that snaps back when prices fall, or the first visible crack in a structural shift in how Asia consumes gas. The answer determines who wins and who loses when the Strait of Hormuz eventually reopens.
The Mechanism: A War Shock That Reached the Chinese Industrial User
The price spike has a precise origin point. The conflict between the United States and Iran, which began on February 28, brought Iranian strikes against Qatar's Ras Laffan gas hub — the single largest LNG export complex in the world. QatarEnergy declared force majeure on its LNG output, and by mid-March its chief executive, Saad al-Kaabi, put the damage in hard numbers: Iranian attacks had knocked out 17% of Qatar's LNG export capacity, sidelining 12.8 million tons a year for three to five years and costing an estimated $20 billion in annual revenue.
"For production to restart, first we need hostilities to cease," al-Kaabi said at the time.
From there the transmission channel ran straight through the Strait of Hormuz. The strait normally carries about a fifth of the world's seaborne LNG shipments, and visible traffic through it had essentially halted over the two months to the end of August. The Arabian Gulf supplies roughly a third of China's LNG, so a blockage there is not an abstract risk premium — it is a direct hit to China's marginal supply curve. Spot prices responded accordingly: the Asian benchmark averaged around $21 per mmBtu in August, compared with $12 per mmBtu in the same month a year earlier, having more than doubled to $26 per mmBtu from $10.40 per mmBtu in the last week of February, before the first strikes on Iran.
"Under current high prices, discretionary stocking is also going to be delayed for Chinese buyers. We think the major discretionary stocking is going to come in late December or Q1 2027 onwards," Nelson Xiong, a senior LNG analyst at Kpler, said in an interview.
That sentence captures the entire dynamic. "Discretionary stocking" is the demand that lives at the margin — the volumes that make economic sense only when the spread between the landed cost of LNG and the alternative fuel, whether coal, pipeline gas, or domestic output, is favorable. At $26 per mmBtu, that spread has gone negative for a large slice of China's industrial gas demand, and the buyers who were supposed to rebuild inventories ahead of winter have simply walked away.
The data confirms the walkaway. August's 5.2 million tons was the first year-on-year decline after three months of gains, and the full-year trajectory has been downgraded in step. Kpler now expects China to import around 61.3 million tons in 2026, down from 68.4 million tons in 2025, according to Chinese customs data. Kpler's own research later trimmed the 2026 China LNG demand forecast to 63.5 million tons, citing a weaker outlook for industrial gas demand in the fourth quarter.
Why This Is Not Just a Cyclical Dip
The instinctive read of this episode is cyclical: a war disrupts supply, prices spike, demand falls, and when the strait reopens and Qatari trains come back online, imports rebound to their previous path. That view is not wrong about the price leg. The price shock is cyclical by definition — it is a geopolitical event with a resolution date, and forward curves already price that resolution in. Kpler forecasts Asian spot LNG to average $19.30 per mmBtu this year and $14.90 in 2027; Rystad Energy sees averages above $19 this year and around $17 next year. Wood Mackenzie expects prices to stay in the $15–20 range in 2027 even if Hormuz shipments resume by year-end, rising above $20 if the strait stays closed.
But the demand response is a different story, and conflating the two is the most common error in reading this market. The demand destruction is revealing something structural about China's gas system: it has far more elasticity, and far more substitution capacity, than the pre-conflict consensus assumed.
Three pieces of evidence support the structural read. First, substitution is real and immediate. Northeast Asia has been able to absorb the demand destruction because it has alternatives within its own power mix.
"A lot of that demand destruction has been absorbed by Northeast Asia ... they have coal, they have some nuclear availability. Depending on the country's power mix, they were able to bring down their LNG demand," Lu Ming Pang, an analyst at Rystad Energy, said.
China is the world's largest coal-fired power generator and has been adding nuclear capacity at pace. When LNG at $26 per mmBtu competes against domestic coal and baseload nuclear, the gas plant gets dispatched last. That is not a temporary accounting choice; it is a reordering of the merit order that persists as long as the price gap persists, and the price gap only needs to persist long enough to change behavior permanently.
Second, China has spent years deliberately building the substitutes, and the data shows the effort is paying off now. Domestic LNG output rose 5.88% month-on-month in July 2026, while pipeline imports from Russia via the Power of Siberia line have been expanding, and seaborne sources have been diversified toward Russia and Malaysia and away from the Arabian Gulf. A buyer who has already switched a factory's boiler from LNG to pipeline gas or coal does not switch back the moment spot prices dip 10% — the capital has been spent, the contract has been signed, and the switching cost now runs the other way.
Third, the inventory cycle that drove the earlier import surge has run its course. The year-on-year gains in the three months before August were explicitly a refill trade ahead of summer peak demand. Once inventories were full, the marginal buyer disappeared. What remains is baseload demand, and baseload demand is exactly the slice that has the cheapest substitutes.
This is why the cyclical-versus-structural call matters for the conclusion. If the whole episode is cyclical, then the consensus forecast of Asian LNG demand rebounding to around 280 million tons in 2027 is a safe bet. If the demand destruction has a structural component — and the evidence above says it does — then the rebound will be slower and lower than the consensus expects, and the premium Asia historically paid over Europe for flexible cargoes will not fully return.
The Second-Order Trade: Europe Gets Relief, Asia Loses Its Premium
The first-order effect of high prices is obvious: China buys less. The second-order effect is where the market has not fully priced the consequence. China is the swing buyer of the global LNG market — the marginal demand that sets the clearing price for flexible Atlantic Basin cargoes. When China steps out, those cargoes do not vanish; they get redirected, and the most natural destination is Europe, which is under pressure to replenish below-average gas inventories ahead of winter.
That redirection is a quiet windfall for European importers. For two years, Europe has been outbid by Asia for spot LNG, paying the premium that Asian buyers could afford because their gas-to-coal switching economics were less favorable. With China's industrial users priced out, European utilities can now compete for cargoes without being undercut by a marginal Asian buyer with deeper pockets. The spread between Asian and European prices is the single number to watch for evidence that the rebalancing is underway. Before the conflict, that spread flipped from a European premium of $0.9 per mmBtu in January and February to an Asian premium averaging $2.8 per mmBtu by March, according to the International Energy Agency's gas market report — a shift that pulled flexible cargoes eastward. A sustained reversal of that spread back toward Europe would be the first hard signal that China's absence is reshaping global trade flows.
The third-order implication is an expectation gap. The consensus narrative has Asia's LNG demand rebounding sharply in 2027 once Qatari supply returns. Kpler and Rystad both see Asian demand recovering to around 280 million tons next year on the assumption that Hormuz flows resume and Qatar ramps production by the first quarter of 2027. But that forecast embeds a behavioral assumption that the evidence contradicts: it assumes the demand that disappeared in 2026 is waiting, pent-up, on the sidelines. The Kpler analyst's own words say otherwise — the stocking is being "delayed," pushed to late December or the first quarter of 2027, and only then if prices cooperate. Delayed demand is not guaranteed demand. If prices in the first quarter of 2027 are still in the mid-teens rather than the single digits, the stocking trade may be delayed again.
Not every buyer is walking away. India and Bangladesh continue to secure spot cargoes despite the price spike, supported by city gas distribution, fertilizer demand, and baseload power requirements.
"In India, LNG demand is expected to remain predominantly supported by the city gas distribution and fertilizer sectors, which collectively account for approximately 70% of the country's total LNG imports," Shruti Shah, an analyst at LSEG, said.
That contrast — India's inelastic city-gas and fertilizer demand holding while China's discretionary industrial demand folds — is the clearest evidence that this is a demand-composition story, not a blanket Asian demand collapse. The buyers with regulated end-markets and limited fuel-switching options keep buying. The buyers with options stop.
The Counter-Thesis: What Could Prove This Wrong
The strongest case against the structural-demand-destruction view is straightforward: China's import decline may have less to do with price elasticity and more to do with timing and weather, both of which can reverse quickly. A colder-than-expected winter in northern China would force heating demand higher regardless of price, because residential heating is a regulated, inelastic load. A slower recovery in domestic gas production would widen the supply gap that LNG must fill. And a resolution to the US-Iran conflict — with Hormuz traffic resuming and Qatari exports ramping faster than expected — could push prices back toward single digits quickly enough that the deferred stocking trade returns in force.
Each of those reversal factors is real, and any forecaster still expecting a sharp Asian rebound in 2027 is implicitly betting on some combination of them. The counter-thesis has weight because the war itself is the source of both the price shock and the potential resolution — the same event that broke the market could also fix it.
The answer to the counter-thesis is that all three reversal factors are real but insufficient to restore the old demand path. Weather is a one-season variable, not a structural driver. Domestic production recovery is a slow variable — China's output has been trending up for years, which is precisely why imports have been under pressure. And a Hormuz resolution, while it would ease prices, would not un-spend the capital that Chinese industry has already committed to coal and pipeline substitution. The falsifying signal is specific: if China's monthly LNG imports return above 6.5 million tons for two consecutive months while the Japan-Korea Marker stays above $18 per mmBtu, the structural-demand-destruction thesis is wrong, because it would prove that industrial demand is price-inelastic after all. Conversely, if prices fall back below $14 per mmBtu and imports still fail to recover, the structural read is confirmed.
What to Watch: Three Horizons, Three Scenarios
Short term (the rest of 2026): Expect continued import weakness. September is set to extend August's decline, and the deferred-stocking dynamic means the fourth quarter will not see a meaningful recovery unless prices drop sharply. Watch the weekly JKM print — a sustained move below $20 per mmBtu would be the first sign that the marginal buyer is returning.
Medium term (2027): This is where the scenarios diverge. The base case is a partial rebound: prices average in the mid-teens, Hormuz traffic resumes gradually, and China's imports recover modestly but remain below the pre-shock trajectory as substitution holds. The upside case requires two things to break right simultaneously: a fast Hormuz resolution and a cold winter that drains inventories, which together could push imports back toward the consensus rebound to around 280 million tons for Asia. The downside case is a protracted closure of the strait, prices above $20 per mmBtu through 2027, and demand destruction spreading beyond China into other price-sensitive Asian markets.
Long term (structural): The war has accelerated a trend that was already underway — Asia's largest gas consumer reducing its dependence on seaborne LNG from the Middle East. Even after prices normalize, China's import mix will be more diversified, its domestic and pipeline supply larger, and its industrial demand more price-sensitive than it was before the conflict. The era of Asia paying a persistent premium over Europe for flexible LNG is likely over, because the buyer who paid that premium has learned it can live without the cargo.
The beneficiaries are clear: European gas importers get relief on their winter refill bills, and Russian pipeline gas and Malaysian LNG gain share in China's supply mix. The exposed are equally clear: QatarEnergy and other Gulf exporters face a lower-volume, lower-premium market even after their trains return, and Asian spot buyers without fuel-switching options remain at the mercy of a strait they do not control.
High prices did not just reduce China's LNG imports for a month. They revealed how much of Asia's gas demand was optional — and optional demand, once switched off, does not always switch back on.
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