Market observers doubt that Chinese LNG importers will exercise ‘force majeure’ at this point in time. “So far, the virus’ impact on the real economy is not moving the market yet,” LNG Unlimited Data analyst, Alex Wilk said, pointing instead to oversupply and the climb-down from a high-demand period in December. “What we see regarding price is traders cutting their risk exposure,” he noted, “rather than a slump in real demand.”
S&P Global Platts cautioned it might take time for to justify this virus outbreak as force majeure. “While it might affect a buyer’s ability to fulfill its contractual obligations, most of the long-term contracts have an annual volume commitment that can be postponed to later in the year,” analysts said, suggesting “it might be early for Chinese companies to justify and obtain reliefs from performance.”
Energy demand "greatly affected" by coronavirus outbreak
Chinese LNG offtakers are apprehensive amid uncertainly of how quickly the virus can be contained. “Demand for LNG will be greatly affected,” one end-user told Platts. “There is a decline in residential gas demand, gas power generation and traffic. If the epidemic lasts until May, I think the LNG growth rate will be a single digit.”
If and when Chinese LNG importers will resort to using ‘force majeure’ certificates, they would be obliged to provide proof of delivery delays or cancellations, sales contracts or agreements, as well as customs declarations. Traders indicated Chinese gas buyers might try to delay February cargo deliveries due to a downbeat demand outlook as impacted as millions of Chinese citizens are quarantined which heavily impacts the domestic economy.
Economic fears, sparked by the fast-spreading coronavirus, now outweigh the positive news of the phase-1 trade deal between the United States and China, whereby Beijing committed to purchase an additional $52.4 billion of energy products from the United States, including oil, coal and LNG.