**The impact of China’s coronavirus outbreak on LNG market is expected to 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.
**China’s state-owned CNOOC has declared force majeure on LNG contracts.
**CNOOC remains most affected due to the suspension of many factories and transport restrictions, and many domestic LNG terminals were running with high inventories due to the fall in gas demand.
**A source with city gas distributor Guangzhou Gas said only half of its employees were able to return to work Monday morning, and gas demand from its customers had fallen by around 40% in the past two weeks.
**Australian LNG exports are most exposed to any potential cargo cancellations by Chinese buyers.
**It said that CNOOC has contracts with Shell’s QCLNG at the Port of Gladstone in Queensland, Australia.
**QCLNG, as well as its neighboring Origin-ConocoPhillips’ Australia Pacific LNG which are Australia’s most vulnerable LNG projects to any demand shocks stemming from the outbreak, energy consultancy EnergyQuest.
**Australian gas producer Woodside, one of CNOOC’s biggest suppliers, has not received a force majeure notification.
**CNOOC has more than 20 million mt/year in FOB and DES sales and purchase agreements.
**The force majeure and coronavirus impact, combined with a lack of tariff relief on Chinese imports of US LNG, create a perfect storm for already struggling project developers in the US.
**Several US developers have delayed final investment decisions, with one warning it was running out of cash to continue normal operations.
**Cheniere has a 1.2 million mt/year supply contract with PetroChina. Cargoes are being lifted, but have been diverted since last year due to Chinese tariffs.
**S&P Global Platts Analytics forecasts that if reduced industrial activity across Hubei Province extends through the end of February, it would reduce Chinese LNG demand by 5%-7% relative to its base case, driving down imports.
The Australian net-back gas price is today $2.70Gj. Instead 95% of volumes are being sold at $11Gj. Japan is enjoying a 75% discount for Australian produced gas compared to Australian consumers.
Pull the Australian Domestic Gas Secuity Reservation (ADGSM) lever now, Scummo.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
