Coronavirus Outbreak Cuts Into Chinese LNG Demand
According to consultancy Rystad Energy, China's LNG imports fell by about 10 percent year-on-year in January, pulled down by disruption from the coronavirus outbreak.
“Given the strictest lockdowns of cities and factories, the Chinese government is trying by all means to end the outbreak as quickly as possible, so we see a speedy economic recovery later this year and a return to growth in LNG imports. However, the growth rate is expected to be much lower than previously predicted, mainly due to the industrial sector. The largest gas consumer in China is undergoing a heavy hit,” said Xi Nan, Rystad's VP for gas and power markets.
The situation is exacerbated by China’s top LNG importer, CNOOC, declaring force majeure in an attempt to free itself from contractual obligations to receive LNG. The claim requires CNOOC to prove that the impact of the virus effectively prevents it from taking delivery. At least two of CNOOC's suppliers, Royal Dutch Shell and Total, have reportedly rejected CNOOC's force majeure assertion.
Other Chinese energy buyers are also said to be considering force majeure declarations; even without taking that dramatic step, some have slowed down. PetroChina has delayed the discharge of cargoes due to a shortage of LNG receiving terminal workers, evidence of the widespread labor disruptions caused by China's quarantine measures. At least five LNG carriers have diverted from Chinese destinations or have had to wait offshore for a berth since the outbreak began, according to Bloomberg.
When including the impact of the virus, Rystad expects that Chinese LNG demand will only grow by about five percent annually in 2020 - a sharp drop from its previous forecast, which saw Chinese demand growing at 10 to 13 percent.
Rystad expects global summer LNG spot prices to remain in the range of $3.30 per MMBtu, but if Asian demand falls further, prices could fall as low as $2.30 - barely above Henry Hub pricing.