For Qatari spot supply it is more attractive to head rather to European gas markets than to Asia. For US cargoes, a JKM premium at 0.51 $/MMBtu would be still insufficient to offset the higher freight costs for US cargoes to go to Northeast Asia ahead of Europe.
The pace of recovery in Chinese LNG buying hinges on the ramp-up of economic activity in the coming weeks. Analysts anticipate a rather slow rebound which could leave gas demand subdued throughout most of the second quarter.
Though workers were to return to work on February 14, many factories appear to remain shuttered amid reports that many people are not returning until March 1. Travel restrictions between affected provinces and quarantine measures are also greatly reducing demand for petroleum and natural gas.
Q2-2020 may be worst hit
With China’s three main LNG importers all having declared ‘force majeure’ for Q1 delivery, between 35 and 50 February cargoes could be at risk. Suppliers are struggling to offload the contracted cargo elsewhere in an oversupplied market.
Total and Shell have rebuked the ‘force majeure’ measures, suggesting the Chinese state buyer might be trying to forego their contractual offtake commitments to be able to buy cheaper gas on the spot market.
Kpler date indicates some cargo diversions away from China as well as eight cargoes held as floating storage in the Pacific basin.
Demand destruction might continue if the spread of the virus is not contained in due course. Though China has been claiming a slowdown in the number of new cases in recent days, the World Health Organisation (WHO) warned the infection rate could again accelerate. In this event, the second quarter would see gas demand destruction on an even larger scale than at the start of this year.