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Business Last Updated: Feb 19, 2020 - 11:42:37 AM


An Evidence-based Look at Current Chinese LNG Demand
By LNG Unlimited 18/2/20
Feb 19, 2020 - 11:41:29 AM

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Chinese measures in response to the coronavirus have only had limited effects on national LNG offtakes­­ in February, generally delaying cargoes rather than cancelling them. Instead, other market factors are weighing more on record-low Pacific LNG prices.

Much has been written – and speculated – about the impact the outbreak of a new coronavirus (aka 2019_nCoV, i.e. 2019_newCoronaVirus) in China has had on LNG demand in the country. The term ‘coronavirus’ refers to a large family of viruses responsible for illnesses such as the common cold as well as severe respiratory impairments, according to the WHO. Market concerns have been amplified by prevailing LNG oversupply in the Pacific region.
Condensed timeline
The WHO received the first report of a 2019_nCoV case on 31 December last year, with first infections estimated to have taken place as early as mid-November. However, Chinese economic activity was not affected by public health action at the time. This changed on 23rd January, when the wider metropolitan area of Wuhan – believed to be the epicentre of the outbreak – as well as 10 neighbouring cities and municipalities were quarantined. Notably, the annual Spring Festival holidays marking a time of nationwide mass-travelling were due to start on 24th January. All quarantine areas are located in Hubei Province in Central China. Other metropolitan areas such as Shanghai and Beijing have since had travel limitations of varying degrees imposed, too, but there are no indications they were quarantined like Wuhan. Later, China’s Spring Festival holidays were officially extended to 2nd February and by up to 25 days to 24th February by individual companies such as CMA CGM Group (different extensions apply to different regions) to reduce staff exposure at work. Importantly, public holidays in provinces hosting LNG terminals except those located in Tianjin had ended at the time of writing.
Evidence of recent Chinese LNG import activity
China’s LNG imports have been on a solid path for annual growth. As such, LNG offtakes had grown by more than 15% in 2019 with average utilisation of nominal capacity at 99%. In terms of January imports, 2019 saw demand growth of almost 36% compared to 2018. Although offtakes in January 2020 had decreased by almost 11% compared to 2019, they were still more than 21% higher than in January 2018.
Chinese
                          LNG Imports
When comparing February imports up to and including 17th February, Chinese LNG offtakes were more than 12% higher compared to the same period last year, thus somewhat compensating for the y/y reduction seen in January. At the time of writing, our LNG Market Tracker indicated that 22 additional cargoes were still scheduled to arrive in China by end-February, suggesting February demand could be further embellished by up to 1.64mmt.
Chinese
                          LNG Imports in 1H February
Minor delays without major impact
Importantly, the rise in y/y imports in February was by and large not due to delays originating in January. This does not mean there were no delays at all (presumably reduced staff at various terminals were a contributing factor) but where they occurred the affected vessels still arrived within the month they were supposed to. An isolated case of an inter-month delay was that of the Methane Patricia Camila, which arrived at Zhejiang LNG 4 days late on 3rd February.
Only two cargo diversions away from China
Since the coronavirus has hit international news, we have only seen two definitive diversions away from China, comprising the Beidou Star – ordinally scheduled to ship a QCLNG cargo to Tianjin – and the Marvel Pelican, which arrived but was then turned away from Zhejiang LNG on 13th February. However, these cargoes may well wait off South Korea and Singapore, respectively, until returning with their cargoes.
Whilst some vessels such as the LNG Jupiter – (currently idling off Taiwan) and the Nigerian LNG Abalamabie (waiting off Shanghai) have had to content with protracted delays, we do not currently see any other cargoes being diverted. Meanwhile, the Prachi, which had been waiting off Singapore, has now set course for Tianjin.
Anti-coronavirus measures have so far shown limited impact on LNG imports
Accordingly, the public health measures outlined above have had limited effect on LNG offtakes in February so far, despite an extension of national holidays and quarantines. Instead, we point to a relatively mild winter, high regional import capacity utilisation, rigid market structures in South Korea and Japan and lacking infrastructure in India and elsewhere as more pertinent factors in the regional price crash predicated by protracted supply growth.
Fear of force majeure likely overblown
Finally, a much-repeated concern has been that Chinese LNG buyers will declare force majeure, leaving numerous scheduled cargoes stranded, either to reduce exposure to excess supply or to take advantage of record-low spot prices. China’s International Trade Council even promised to provide applicants with force majeure certificates as a result of the coronavirus outbreak (though their usefulness in supporting a force majeure claim under international trade law may be limited). However, our evidence above does not support a rush to declare force majeure. Indeed, force majeure clauses tend to be restrictive due to their specificity, meaning they have to expressly address the factual circumstances of China’s coronavirus outbreak to be relied upon.

Source:Ocnus.net 2020

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