Turmoil In Global Gas Market

◊ Natural Gas News China

⇑⇓ StockMarketNews.Today ⇓⇑

Chinese importers threatening to cancel up to 70 per cent of seaborne imports in February as demand collapses and companies struggle to staff ports. The move by China, the world’s second-largest importer of liquefied natural gas, has sent prices to their lowest level on record and sparked a row with suppliers, which claim the Chinese companies are breaching their contracts to secure lower prices on the spot market.

The stand-off is the latest sign of the economic damage being wreaked by the coronavirus outbreak, which is expected to curtail global growth as large parts of the world’s second-largest economy essentially are in lockdown.

Lower gas prices are a potential boon for manufacturers and consumers but a problem for energy companies, which have warned of a big hit to profits in the first half of this year. Oil demand in China is also estimated to have fallen by as much as a quarter in February, as big cities have been quarantined, flights cancelled and public holidays extended to try to contain the spread of the virus, which has killed more than 600 people and infected more than 31,000.

Two of China’s largest energy groups have already declared “force majeure” on at least 14 LNG import cargoes, invoking a clause usually reserved for natural disasters or war that frees both sides from the contract. Chinese LNG buyers are likely to issue more such notices in the coming days, according to people with knowledge of the transactions.

Some LNG tankers are said to have been diverted from southern Chinese ports to the north. But analysts say other large markets in Asia and Europe are saturated amid a global supply surfeit, meaning ships are likely to anchor off Chinese shores as floating storage. Wholesale gas prices in the UK are close to the lowest level since the financial crisis.

“The prospect of a flotilla of diverted LNG carriers sailing around the world looking for a home only adds to the bearish sentiment,” said Frank Harris, global head of LNG at consultancy Wood Mackenzie.

A glut of natural gas has already depressed Asian LNG prices to a historic low of $2.95 per million British thermal units. LNG sellers complain that China’s use of the force majeure clause is at least partly motivated by importers’ desire to buy at cheaper spot prices instead of cargoes imported under their long-term contracts.

The LNG market has grown rapidly in recent years, boosted by greater supplies from the US and Australia. The rise in seaborne gas trade has connected regional markets and brought prices closer together, meaning a drop in Asia can now mean cheaper prices in Europe, and vice versa.

Of the cargoes already cancelled under force majeure, 10 were issued by China National Offshore Oil Corporation (Cnooc) to Royal Dutch Shell, with PetroChina refusing to take two cargoes from Qatar and two from Malaysia — including one due for delivery in March — according to people with knowledge of the contracts.

As many as 50 cargoes, or 70 per cent of February’s total imports, are now thought to be at risk of cancellation over the coming days, as buyers including Sinopec have sent out notices saying they will struggle to take them.

China imported an average of almost 7bn cubic metres a month of the supercooled fuel last year, according to consultancy Energy Aspects. Although China has expanded its storage in recent years, capacity remained limited, analysts at ANZ said. LNG suppliers, traders and lawyers are questioning the legitimacy of declaring force majeure due to a drop in demand following the spread of the coronavirus.

“There are substantial questions about whether it’s appropriate,” said Jason Feer, global head of business intelligence at Poten & Partners, a broker. “They’re getting a lot of pushback from suppliers saying low prices and full tanks is not a force majeure event.”

France’s Total said it had rejected a majeure notice from one Chinese company.

“Our legal analysis is that there is no force majeure,” said Philippe Sauquet, Total’s president of gas, renewables and power. “We have to be careful because if there is a real quarantine in a loading or unloading port, there will be a real case for force majeure in China.”



Tesla Resume Production In Shanghai

U.S. electric carmaker Tesla‘s factory in China’s financial hub of Shanghai will resume production on Feb. 10 with assistance to help it cope with a spreading epidemic of coronavirus, a Shanghai government official said on Saturday.

Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future

Many factories across China shut in late January for the Lunar New Year holiday that was originally due to end on Jan. 30 but which was extended in a bid to contain the spread of the new flu-like virus that has killed more than 700 people.

Tesla warned on Jan. 30 that it would see a 1-1.5 week delay in the ramp-up of Shanghai-built Model 3 cars as a result of the epidemic, which has severely disrupted communications and supply chains across China.

Tesla Vice President Tao Lin said this week that production would restart on Feb. 10.

“In view of the practical difficulties key manufacturing firms including Tesla have faced in resuming production, we will coordinate to make all efforts to help companies resume production as soon as possible,” Shanghai municipal government spokesman Xu Wei said.

The $2 billion Shanghai factory is Tesla’s first outside the United States and was built with support from local authorities. It started production in October and began deliveries last month.

The Shanghai government also said on Saturday it would ask banks to extend loans with preferential rates to small companies and exempt firms in hard-hit sectors like hospitality from value-added tax, among other measures to prop up businesses during the epidemic.

Such assistance would also apply to foreign companies, it added.

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One thought on “Turmoil In Global Gas Market

  1. Pingback: Turmoil In Global Gas Market... Chinese importers threatening to cancel up to 70 per cent of seaborne imports in February ... -

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