Coronavirus impact is being felt on world trade. Almost all commodity prices have been hit after China was cut off from the world. Liquefied Natural Gas (LNG) -- has suffered the most on account of a sharp price fall.
Imports of LNG into China, the world’s second-largest importer of LNG after Japan, have almost stopped. The result is visible in Asian LNG spot prices which have tumbled to $3 per mmBtu - less than half of what they were ...at the same time last year.
China National Offshore Oil Corporation, China's top LNG buyer declared force majure last week, which is a legal provision that allow them to break contractual obligations because of circumstances beyond their control.
This has raised the specter of more Chinese LNG importers revoking on supply contracts, and concerns about more cargo cancellations.
Record low prices of (LNG) on the one hand is creating havoc as traders are rushing to find alternative locations for cargoes and on the other hand are attracting buying interest from companies in Asia which are hunting a bargain at these prices.
Energy ship broker and consultancy firm Poten & Partners has said that at least five LNG cargoes had been diverted from China, and another 30 due to
land there this month could face diversions, delays or force majeure declarations. For the LNG industry, this kind of force majeure situation had never happened earlier and therefore there is this panic.
The other problem with LNG is that the economic slowdown and mild winters had already resulted in high inventory levels of LNG globally.
Japan, which is the largest importer, has slowed down purchases on account of a mild winter and lower consumption of the fuel. And now with Chinese companies looking to revoke contracts -- it has only added to the troubles.
So where will these cargoes?
Traders are now casting around for homes for unwanted cargoes. As per some reports, one Cargo bound towards China has been diverted to Singapore now.
Some suppliers have also said that the Chinese company has requested them to delay cargo deliveries India, which recently commissioned an LNG terminal, has some scope for more purchases, but experts say even with LNG prices so low, India's poor infrastructure facility and lack of a pipeline and distribution network will not allow to buy what it could have.
Major buyers in Japan and South Korea could benefit as they but overall consumption levels there are also limited. Europe which absorbed most of the incremental supply in 2019 also has limitations now.
What's the way ahead?
The impact of China's coronavirus outbreak on LNG market could worsen in coming weeks as economic activity in key manufacturing hubs struggles to rebound, keeping a lid on natural gas demand and triggering more LNG trade flow disruptions.
Consultancy firm Rystad Energy has also cut its forecast for Chinese LNG demand growth this year to 4.7%, from a year on year gain of between 10% and 13%.
Experts suggest how Low spot prices will certainly challenge the economics of many export projects, and that some LNG suppliers may even need to reduce their exports if they become uneconomic.
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