LNG suppliers are currently flooding the market with excess spot cargoes, generating fresh price problems, as demand dwindles globally, due to the coronavirus outbreak.
Lockdowns and strict travel curbs to try to slow the spread of the virus have led to a big drop in demand in countries, such as India, Italy and Spain, all major LNG buyers.
The LNG glut has pushed Asian spot prices towards the record low last seen in February when demand sank in China, due to the virus.
Spot LNG prices were already at seasonal lows before the crisis hit following a warm winter and the fallout from the trade war between the US and China.
Total LNG deliveries to Europe are expected to reach nearly 11 mill tonnes, a 14% hike from the previous record set in December, according to IHS Markit, which said the supply push comes as gas demand is collapsing at double digit rates, Reuters reported.
“Asian buyers are reselling volumes purchased from the US and portfolio sellers are offloading their excess cargoes as well,” said Michael Stoppard, IHS Markit chief strategist for global gas, talking with the newswire.
Given the uncertainty, LNG buyers in North Asia had opted for a ‘downward quantity tolerance’ (DQT) when negotiating their annual delivery programmes. Some buyers are now exercising the clause that allows them to cut volumes by up to 10%.
“We’re seeing more sell tenders these days due to a combination of factors like coronavirus and DQT, but this also means that when demand rebounds, buyers will return to the market to seek spot cargoes,” a Singapore-based LNG trader said.
A gas trader in Spain said everyone was using all the flexibility available in contracts.
“If a contract is not on the money and has downward flexibility, everyone is doing it in whatever they can: cancelling a cargo, cancelling a volume within a system,” a trader told Reuters. “Right now if we could cancel, depending on the contract, we would cancel everything we could.”
Last week, Qatargas approached buyers in Asia and Europe to offer cargoes for delivery or loading in April, sources said.
Traders said it had likely been forced to seek buyers for its excess cargoes after being issued with a force majeure notice by Petronet LNG. Qatar is India’s biggest LNG supplier.
Cheniere Energy, the largest US LNG exporter, also offered a cargo for loading in early April from Sabine Pass, which traders claimed was unusual.
In Australia, Malaysia’s Petronas offered a cargo for loading in May from the Gladstone plant in which it has an equity stake, likely due to a cancellation from a buyer, an industry source said.