Coronavirus Takes Toll on China's LNG Imports: Rystad

Oslo-based Rystad Energy has slashed its forecast for Chinese LNG demand growth this year to 4.7%, from 10-13% previously, because of the impact the coronavirus has had on economic activity in China.

The world’s top gas importer cut LNG purchases by 10% year on year in January, Rystad estimated in a research note on February 7.

“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,” Rystad’s vice president for gas and power markets, Xi Nan, explained. “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.”

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.

The outbreak’s impact on demand could be offset by a growth in US LNG imports however, Rystad stated, thanks to the so-called “Phase One” trade deal between the US and China in January, under which Beijing pledged to buy an extra $52.5bn of US energy goods over two years. In light of this commitment, Rystad expects China to reduce or remove tariffs on US LNG imports, facilitating the growth in supplies.

Moving forward, LNG sellers could face more pressure from buyers wanting to renegotiate contracts or avoiding signing new ones, if more Chinese companies cancel or defer import obligations, and if spot prices then decline further, Rystad said.

Asian summer prices should remain at $3.3/mn Btu, allowing LNG producers to cover operating costs for more than 80% of exported volumes, the consultancy said. But they could sink to a floor of $2.3/mn Btu, assuming a Henry Hub price of $2/mn Btu and sunk transportation costs and $0.30/mn Btu for liquefaction.