Coronavirus Could Put Asian, European Gas Markets Under Severe Stress: Fitch

The coronavirus outbreak could put the natural gas markets in Europe and Asia under severe stress due to the curbing of LNG imports by China, Fitch Ratings said February 11. This could significantly delay the supply-demand rebalancing expected in 2020.

Chinese LNG imports were the key driver in the market as the country accounted for 17% of global purchases in 2018 and 50% of global demand growth in 2016-2018. The magnitude of any demand loss will depend on the speed of business activity recovery, Fitch said.

Some Chinese importers have declared force majeure on their contracts, which may cancel up to 70% of seaborne imports in February, according to press reports. Cnooc has reportedly invoked forces majeures on some of its LNG import contracts because of the epidemic, and China’s other state energy giants are understood to be considering similar moves. PetroChina has also delayed the discharge of cargoes because of uncertain demand and labour shortages.

Spot prices have weakened significantly and Fitch said that a prolonged period of low spot prices could spark contract re-negotiations between suppliers and customers in Asia, where contracts are oil-linked, and slow down prospective projects.

Independent producers with high gas exposure could be more affected, though much depends on individual circumstances, Fitch said. Few US LNG projects will be directly affected by the force majeure given the lack of deliveries to China amid trade tensions. US supplies are expected to grow in 2020-2021 thanks to capacity additions, although with lower growth rates, Fitch said.