LNG shipping: outlook mired by vessel glut and China demand woes despite US-China trade truce

THE near-term outlook for the liquefied natural gas shipping market remains under pressure, despite easing China-US trade tensions.

While vessel supply continues to outstrip demand, Europe’s 23% year-on-year increase in LNG imports during the first quarter was offset by top global buyer China’s 25% slide, Vortexa data shows.

China’s weak industrial demand, stemming from soft economic growth, along with robust pipeline imports from Russia, trade friction with the US and ramped-up domestic gas production are all seen by analysts as factors behind the decline.

The other two key Asian importers, Japan and South Korea, saw flat volume growth because of mild winter weather, the return of nuclear power and sufficient inventories.

There were even worries that demand would deteriorate further from increased escalation in the Sino-US trade war prior to last week’s tariff agreement, although the truce has now lifted market sentiment.

How much the tariff cuts will boost China’s economy and spur energy consumption remains to be seen. While removing the 91% reciprocal US duties will allow many Chinese factories to resume exports, the remnants — including a 10% base tariff and 20% fentanyl-related duties — will still deter some others.

“So we are waiting to essentially see how that plays out,” said Eric Yep, an LNG analyst at S&P Global. “There could be an uptick in energy demand over the next two to three months.”

However, any immediate upside is seen as very limited on the direct trade front, as China’s 25% tariff on US LNG imposed before April’s sharp escalation has since halted the flow and is not part of the current exemptions.

“That 25% remains high and economically uncompetitive to boost US-China LNG trade,” said Drewry gas shipping analyst Pratiksha Negi.

Negi noted that with alternative sources such as Qatar, Russia and Australia available, Chinese buyers are likely to remain cautious about purchasing US LNG — especiall spot cargoes — even as demand is expected to rebound during the summer.

“We believe the new truce talks and tariff ease have an indifferent impact on current LNG dynamics,” she said. “More easing and favourable negotiations will be required to impart significant changes.”

Despite the US making up only around 5% of China’s total LNG imports in recent years, the trade has an outsized impact on shipping demand due to the long distances via the Cape of Good Hope. No US cargoes have been tracked reaching China since February.

Negi estimates that without the trade friction, the US could have supplied China with 5m-6m tonnes of LNG this year, generating around 80bn-90bn tonne-miles demand — equivalent to between 80 and 90 shipments.

If these cargoes were instead sourced from closer suppliers, such as Qatar, Russia, or Australia, total tonne-mile demand would drop by about 40% — equivalent to a reduction of 45 to 50 shipments.

Of course, if European demand weakens and China continues to suspend imports of US LNG, more American cargoes may be redirected to other Asian countries, cushioning some of the loss.

But Negi said this relief effect is limited, and even new Canadian and African supplies to China do not make up for the drop in US volumes.

One potential positive is that US LNG purchases by China are part of the ongoing bilateral trade talks, as they were when Donald Trump first took office eight years ago.

“We think that there’s a strong chance of that happening, but that may not necessarily be for spot LNG purchases,” said Yep. “It will most likely be long-term contracts, which Chinese importers have signed a huge number of over the past five years, primarily under Biden’s administration.”

Yep pointed out that the prospects for these projects, expected online from next year, were widely questioned due to the trade war but now stand a strong chance of avoiding cancellation if Beijing and Washington strike a deal.

“But in the immediate near term, we don’t think there is too much that can change the equation of LNG freight rates, which are at record lows — partially when newbuilding deliveries are at record-highs,” he added.

Vortexa head of LNG Felix Booth said in a recent report: “A wave of newbuildings and reduced voyage distances continue to weigh on spot rates. Record low utilisation is forcing layups and scrapping in the elderly steam-propelled fleet.”

According to Drewry, 83 new LNG carriers are slated for delivery in 2025, followed by 95 in 2026 and 102 in 2027.

More than 85% of these vessels will be sized between 150,000 cu m and 200,000 cu m. Scheduled deliveries will only start to fall from 2028, with 48 ships due that year and just 11 in 2029.

Negi said most of these deliveries over the next two to three years are expected to come through as they back LNG projects that have reached final investment decisions.

“So I think fleet growth will remain intact through 2027,” she said, adding a freight rebound may only materialise by 2027-28 but is highly dependent on several factors.

These include expected increases in liquefaction capacity, led by the US; sustained Asian LNG demand growth on low prices; and the recent slew of long-term contracts driving US-Asia trade.

This article is part of Lloyd’s List’s Half-Year Outlook 2025, which can be viewed here. A print edition will be distributed at Nor-Shipping in Oslo.

Lloyd's List Daily Briefing 19 May 2025

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