The Independent Commodity Intelligence Service (ICIS) is forecasting that the coronavirus outbreak will cut China's LNG demand by 2.9 million tonnes in 2020. In total, it calculated a provisional net gas demand loss of 3.95bcm as a result of the outbreak.
"China is forecast to import 3.1 million tonnes of LNG in February 2020, down 1.2 million tonnes from imports in February 2019," ICIS wrote in its forecast. "The impact of the Wuhan coronavirus is the main reason for the downward revision."
It forecasts total China LNG demand for 2020 at 65.5 million tonnes, with 2021 imports expected to rise to 71.8 million tonnes.
Asian spot LNG prices hit record low on virus impact and broader oversupply. European TTF gas prices hit a 16-year low but LNG will continue to arrive into Europe. The ICIS East Asia spot LNG price closed at $2.95/MMBtu on Monday, the lowest ever settlement.
The April Asia spot LNG market is trading below the European TTF gas benchmark - this will mean that sellers will push more cargoes into Europe in the second quarter with Europe acting as a market of last resort.
Supply growth is focused on the US where LNG exports are forecast to rise to 58.5 million tonnes in 2020 from 36.5 million tonnes in 2019, according to the ICIS demand forecast, and falling global gas prices trigger concerns for developing US LNG production.
US seller margins are under closer scrutiny, especially as TTF gas prices fall closer to US Henry Hub feedstock costs.
Key Chinese sectors hit by coronavirus:
Industrial, power generation, transport and commercial sectors in China will be the hardest hit by the virus, ICIS writes.
Industrial demand: The manufacturing sub-sector is expected to be the hardest hit. The wider petrochemical sector is affected by the outbreak, but analysis has shown that plants that use gas a feedstock are largely unaffected. An examination of the enforced longer public holidays, which differ region to region, has also fed through to a wider disruption in the factory supply-chain. ICIS has calculated a net gas loss of 1.14 billion cubic meters (bcm) to the industrial sector, relative to a non-outbreak scenario.
Power: While the government has requested power generation to continue to match demand, ICIS expects electricity consumption to fall mainly from the commercial and manufacturing sectors. A net gas loss of 1.35bcm in power generation has been calculated.
Commercial: ICIS has assumed a near-total shutdown of non-essential commercial activities – malls, restaurants, attractions – throughout the prolonged public holidays, resulting in a total gas loss of 0.46bcm.
Transport: ICIS has considered region-specific decline rates over the initial outbreak period of February and March, based upon a given region’s response to the epidemic. For example, Hubei has banned all transport movement. As a result, ICIS has calculated a net gas loss of 1bcm.
Residential: ICIS assumes no negative impact on gas demand within this sector. If anything, the quarantines may cause a slight increase in gas demand as people remain at home during the outbreak.
In total, ICIS has calculated a provisional net gas demand loss of 3.95bcm as a result of the outbreak. This translates to a net loss of 2.9 million tonnes of LNG, as pipe imports and domestic production are expected to remain unaffected during the outbreak.
While the calculations are focused on the perceived peak outbreak period of February and March, ICIS expects gas demand in the second quarter of 2020 to be negatively affected. Consequently, ICIS has made some further allowances for the impact of the coronavirus in April-June.