Chinese companies, including the China National Offshore Oil Corporation (CNOOC), are reportedly exploring the possibility of temporarily rescinding long-term contracts for the purchase of liquefied natural gas (LNG), Vedomosti wrote on Wednesday citing media reports.
Beijing is struggling to take control of the epidemic by closing cities and restricting travel, but demand for gas has decreased significantly, The Financial Times reported earlier citing sources.
Russian energy giant Gazprom earlier said that the coronavirus situation in China had not affected gas exports through the Power of Siberia pipeline. A source close to Gazprom informed Vedomosti that there had been no requests from The China National Petroleum Corporation (CNPC) to adjust export volumes through the Power of Siberia pipeline, adding that deliveries continued according to the contract.
It is difficult to assess now how the coronavirus epidemic could affect gas consumption in China. If Beijing decides to reduce gas consumption, Chinese companies will be in no hurry to declare force majeure, the paper quotes Maria Belova of Vygon Consulting as saying. In 2015 and 2016, Chinese state-controlled companies reduced gas production in the country while maintaining LNG imports, she recalled.
“It is currently difficult to assess the scale of the disaster since it is unclear when the real decline in gas imports will begin. One thing is clear though: this is bad news for the overheated LNG market,” Belova noted.
“A ‘perfect storm’ has come for gas prices in Europe – the commissioning of new capacities, a warm winter, along with storage facilities filled to the brim, and now there is also a drop in demand for LNG from China. The market will be recovering longer than many thought. This year, prices in Europe are likely to be even lower than last year, when the market plummeted,” Dmitry Marinchenko of Fitch Ratings pointed out.