Fossil Demand Decline In India & China Puts Canadian LNG At Risk

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India’s electricity system is undergoing a shift that signals broader changes in global energy markets. For decades, its fossil generation rose steadily to meet rising demand. In the first half of 2025 that changed. Coal- and gas-fired electricity both fell as renewables surged, with total fossil electrical generation dropping 4%, about 30 TWh. The numbers are not marginal. Wind grew by nearly a third year over year. Solar generation jumped by about a quarter. Hydro and nuclear also increased. Together they lifted clean generation to record highs and dropped the share of fossil sources in the power mix below 70% in June for the first time.

Behind those percentages lies a structural change. India’s rapid addition of solar and wind capacity is now being reflected in real output. Hydro benefited from good inflows and nuclear plants ran reliably. The combination has delivered measurable fossil displacement.

The collapse of gas generation stands out. It fell by 34% compared to the same period last year. The reason is simple economics. LNG imports into India are expensive and volatile. Domestic gas production is limited and cannot fill the gap. When renewable generation is abundant and coal remains cheaper on a delivered basis, gas-fired power loses out. Plants that were built with the promise of providing cleaner electricity are now running at very low capacity or standing idle. India had been counted on to be a strong source of LNG demand growth by suppliers. Instead, the first half of 2025 shows the opposite. Gas demand in the power sector has shrunk and LNG cargoes have declined. This is not just a seasonal blip but a sign of how vulnerable LNG is in markets where alternatives are scaling quickly.

China is experiencing a parallel transformation, though the story is not identical. Over the past few years it has built renewable capacity at a scale unmatched anywhere else. Those additions are now cutting into coal’s share of generation. The country’s total electricity demand keeps growing but coal’s relative dominance is eroding. And it’s not just relative dominance. In absolute terms, coal use in electrical generation dropped 5% year over year Q1 2024 vs Q1 2025.

At the same time, China’s LNG imports are down about 20% compared to last year. The decline is broad-based. Spot LNG purchases have dropped sharply because prices are unfavorable. Industrial demand has been weaker, reducing gas consumption. Most importantly, China is importing more pipeline gas from Russia. Deliveries through the Power of Siberia pipeline have increased and contracts are expanding.

The recently signed agreement for Power of Siberia 2 locks in another 50 billion cubic meters a year of supply by 2030. That volume is roughly equivalent to what China was importing as LNG from the United States in peak years. Pipeline gas offers lower prices, stable volumes, and less exposure to maritime supply chains. From China’s perspective, the choice is obvious.

Both India and China were expected to drive global LNG demand growth. Their combined imports were projected to rise steadily for decades in scenarios published by the IEA, Shell, and other forecasters. These assumptions underpinned the case for building new export terminals in the United States, Canada, Qatar, and Australia. Yet in 2025 both countries are signaling that LNG will not be central to their futures. India is showing that renewables will crowd gas out of the generation mix. China is diversifying away from LNG with massive renewables, transmission and storage, domestic production and Russian pipelines. These shifts matter because together the two countries represent the largest block of potential demand growth. If they are going in reverse, the market outlook for LNG becomes far weaker.

For the United States the risks are somewhat buffered by scale and timing. Export terminals already sanctioned and financed are coming online. Contracts are signed with a mix of buyers in Europe, Asia, and Latin America. Flexibility to redirect cargoes means that even if Chinese demand weakens, volumes will find homes. Prices may fall in an oversupplied market but U.S. exporters have cost advantages and global reach. It doesn’t bode well at all for terminals expected to reach final investment decision under Trump’s lift of the LNG expansion pause that Biden put in place.

Canada’s position is much more precarious. LNG Canada is the only major project under construction. Phase 1 has just delivered its first loads and is ramping up to full operation through 2026. Phase 2 is now being framed as a national interest megaproject. The federal government has endorsed it alongside nuclear projects as central to the country’s economic strategy. Yet the signals from Asia make clear that demand growth cannot be assumed.

The risks around LNG Canada Phase 2 are substantial. Over a planned fifty-year life, emissions from both phases are projected at 2.2 billion tons of CO2 equivalent. That is a significant climate burden in a country that has committed to deep reductions. Financial risk is equally concerning. Large energy megaprojects in Canada have a track record of cost overruns and delays. Reference class forecasting, which compares new projects to historical performance of similar ones, suggests that the expansion will cost much more than current estimates. Subsidies and incentives are already built in through tariff exemptions, carbon tax rebates, and provincial credits. Public funds are being committed in support of an infrastructure investment that may not pay off.

The market case is the weakest link. Asian demand was supposed to justify the project. But in 2025, India is reducing LNG imports because renewables are cheaper and coal is entrenched. China is cutting LNG imports while securing decades of pipeline supply from Russia. Europe is pursuing a clear strategy of reducing gas use year after year. Smaller Asian economies may import some LNG, but their ability to sign long-term contracts at high volumes is limited by creditworthiness and political stability. Betting that LNG demand will rise for fifty years in these conditions stretches credibility. Investors will be reluctant to put tens of billions into a project with shrinking markets, high climate costs, and global competition from lower-cost suppliers.

The broader context makes the choice even harder to justify. Renewable energy, interconnectors, and storage have predictable cost curves and shorter timelines. They deliver capacity quickly and without the risk of being stranded by climate policy or falling demand. By contrast, LNG Canada Phase 2 would take many years to build, lock in emissions for half a century, and expose the country to the risk of global oversupply. The national project list is meant to focus resources on infrastructure that delivers long-term value. Placing LNG Canada on that list when its core markets are already signaling retreat is a poor match between ambition and reality.

Canada stands at an energy crossroads. It can continue to commit to fossil export infrastructure that may be stranded before the end of its life. Or it can direct its national ambition toward renewable capacity, transmission expansion, storage, and electrification. India and China, the two countries most often cited as future LNG demand anchors, are already showing that renewables growth displaces fossil fuels quickly. Their choices make it very unlikely that LNG projects will be profitable long term. For Canada, pursuing Phase 2 of LNG Canada under these conditions is not just a financial risk. It is a strategic misstep that diverts attention and capital away from the infrastructure the future will require.