When Asia says no to LNG: The shrinking markets that could leave Australian cargoes stranded

Australia’s energy economy has long been tied to its role as one of the world’s largest exporters of liquefied natural gas.

LNG terminals, liquefaction plants and shipping routes have underpinned tens of billions of dollars of annual revenue, filled state coffers with royalties and supported communities across Queensland, Western Australia and the Northern Territory.

For much of the past two decades the prevailing assumption was that demand from Asia, especially India and China, would continue to grow for decades.

The story was simple. Asian giants were urbanising and industrialising. They would need Australian LNG to power their cities, generate electricity and serve as a bridge fuel while renewables scaled. That assumption is now being tested by hard data.

India provides the first clear signal. In the first half of 2025 coal and gas generation both fell compared to the previous year. Fossil generation dropped about 4% or 30 terawatt-hours while gas-fired generation fell more steeply, declining by about a third.

At the same time wind and solar additions continued to surge. Solar has become the cheapest form of new electricity in the country, and utility-scale wind projects are competitive with any fossil option.

Indian demand for imported LNG is shrinking in absolute terms as renewables eat into the market share of fossil fuels. The expectation that India would provide steady demand growth for LNG exporters is no longer aligning with the numbers.

China is sending the same message in different ways. LNG imports fell by around 20% year on year while domestic natural gas production and pipeline imports from Russia increased. Coal consumption for power generation declined by about 5% in early 2025 compared to the same period in 2024.

Staggering renewable additions in China

Renewable capacity additions in China are staggering. The country is adding tens of gigawatts of solar and wind every quarter, and large amounts of hydro and even nuclear are also contributing.

The combination of lower fossil fuel demand, cheaper clean generation and robust domestic gas supply means China is less reliant on imported LNG than it was even a few years ago.

There are indications that China’s overall emissions may have peaked. If sustained, this shift undermines the demand projections that underwrite new LNG projects worldwide.

Large scale battery deployments in China and India are also beginning to reshape the economics of natural gas generation and, by extension, LNG shipments.

China has already installed tens of gigawatts of grid-scale storage, with national targets that will see capacity double again before the decade ends. India, while starting from a smaller base, is rolling out multi-gigawatt tenders that pair storage with solar and wind projects, creating a pipeline of large deployments across multiple states.

These batteries absorb excess renewable generation and release it during evening peaks, reducing the need for gas peakers that once filled those roles.

Because batteries have near-zero marginal cost and can provide frequency response in milliseconds, they steadily push gas plants further down the dispatch order and lower their utilisation rates.

For LNG exporters this is significant. Declining operating hours for gas generation translate into reduced demand for imported gas, particularly in markets once assumed to be growth engines for Australian LNG.

China and India are the two most populous nations in the world, together accounting for more than 2.8 billion people, over one third of humanity. Their combined economies are immense, with China’s GDP surpassing $18 trillion and India’s passing $4 trillion in 2024.

This scale translates into enormous energy demand. China consumes more than 9,500 terawatt-hours of electricity annually, while India uses over 1,800 terawatt-hours, and both totals continue to rise as living standards improve and industries expand. 

By contrast, the European Union with a population of around 450 million and a GDP of $18 trillion consumes roughly 2,700 terawatt-hours of electricity, but is structurally moving away from imported fossil fuels to renewables, transmission and storage, albeit more slowly than China.

The United States with 330 million people and a GDP of $27 trillion uses about 4,500 terawatt-hours, but it’s become a petro-state and is the only country exporting more LNG than Australia. When the three biggest fossil fuel importing economies in the world are pivoting away from LNG, Australia’s export future is bleak.

Adding to the challenges for Australian exports, a global glut of LNG is on the horizon as export terminals already under construction in the United States, Qatar, Mozambique, Canada and other regions move toward completion.

These projects will add well over 100 million tons of new capacity by the early 2030s, much of it sanctioned before recent shifts in demand in Asia became clear.

With India and China both reducing reliance on LNG imports through rapid renewable deployment, domestic gas expansion and pipeline contracts, the market will face excess supply just as production ramps up. In a commodity market this typically drives prices downward and squeezes margins, particularly for higher cost exporters.

For Australia, where projects are capital intensive and rely on long-term contracts to stay viable, the outcome is that new supply arriving from lower cost regions will undercut existing markets and leave LNG cargoes competing for fewer buyers at thinner margins.

Geopolitics is adding to the volatility. The European Union is pressing forward with its Carbon Border Adjustment Mechanism, raising the bar for high-emission exports.

The United States and China have been engaged in trade conflicts that directly impact LNG cargo flows, with tariffs and import suspensions shifting demand overnight.

Russia is providing China with large volumes of pipeline gas through the Power of Siberia projects, which further reduces the need for LNG imports. Policy decisions in faraway capitals can redirect cargoes and dent revenues faster than the financial cycles of LNG project financing can adjust.

Global LNG markets are already feeling the effects of these changes. Long-cycle investments require two decades of steady demand to make financial sense. When the largest expected buyers are showing double-digit declines in imports, the business case for new liquefaction trains and shipping fleets becomes much less secure.

The risk of stranded assets grows with every gigawatt of renewables installed in Asia. The narrative that LNG will serve as a bridge fuel well into the 2040s is colliding with rapid cost declines in solar, wind and storage. LNG facilities built today may still be operational in the 2040s but the demand side picture is cloudier every year.

Stark implications for Australia

For Australia the implications are stark. The federal Treasury has already projected that fossil fuel export revenues could fall by as much as $50 billion annually by 2035 in its new Net Zero Transformation report, and that’s likely conservative.

That is not a marginal adjustment. It is a shift that could erode the financial base of states that rely heavily on royalties and taxes from coal and gas. Communities tied to LNG infrastructure face uncertainty as global demand softens.

Investors that assumed long-term growth in Asian LNG demand will be reassessing their portfolios. Projects that looked bankable a few years ago will be exposed to reduced demand, lower utilisation rates and lower prices.

Yet while the risks mount, opportunities are becoming clearer. The same Treasury modelling that shows declining fossil export revenues highlights growth in clean exports. Green ammonia for fertilizer and explosives, and processed critical minerals can replace some of the lost income.

Australia is well positioned with vast renewable resources, abundant wind and solar, and strong reserves of iron ore, bauxite and other key minerals.

Processing these materials with renewable electricity to create green iron, green alumina or battery precursors could generate new export industries. Unlike LNG, these are markets that align with global decarbonisation trends rather than fight against them.

This shift will not be automatic. Policy clarity is required. Transmission infrastructure must be expanded to connect renewable generation with industrial loads. Permitting processes for renewable projects must be streamlined.

Regional communities need support to transition their workforces from fossil exports to new industries. Investors require confidence that Australia will provide stable regulatory conditions and long-term signals. Without these enabling conditions the opportunities will slip away to competitors in the Middle East, Latin America or elsewhere in Asia.

The next decade will define whether Australia manages the decline of LNG gracefully or clings to assumptions that no longer hold.

The global market signals are unambiguous. India and China are reducing their fossil demand. Renewables are outcompeting coal and gas on cost. Grid-scale batteries are changing the economics of gas generation globally. LNG cargoes are increasingly volatile and exposed to trade policy.

For Australia the logical path is to diversify exports, leverage renewable resources, and become a leader in green commodities.

The story of LNG may not end tomorrow, but the arc is clear. Australia’s economic resilience will depend on how quickly it can pivot from fossil molecules to clean electrons and green value-added exports.