Following rapid import growth last year, offtakes in January 2020 had plunged almost 11 percent y/y but were still 21 percent higher than in January 2018. According to LNG Unlimited Data, China’s LNG offtakes stood at 5.11 million tons on 29th February.
Analysts disagree on demand recovery
Tough LNG Unlimited Data takes rather bullish views on China’s gas demand recovery, other analysts are more cautiously optimistic. Anticipating a “limited resumption of economic activity,” Wood Mackenzie says full-year 2020 gas consumption could be between 6 Bcm and 14 Bcm lower.
“LNG will bear the brunt of this reduction in domestic gas demand,” analysts commented, estimating the downside impact to Chinese LNG demand as between 2.6 million tonnes (Mt) ‘best case’ with recovery by April, and 6.3 Mt in a more ‘prolonged case’ with a slower return to normal.
Supply correction needed
Faltering Chinese gas demand could not have come at a worse time for the already oversupplied global LNG market. “Disappointing demand growth in Asia Pacific contributed to the halving of LNG prices through 2019,” research director Robert Sims said, “and with further new volumes emerging from U.S. producers, we were already anticipating lower prices through 2020.
Prior to the coronavirus outbreak, analysts had hoped the Pacific Basin gas market would 9 Mt of the approximately 27 Mt of new supply growth in 2020. However, a mild winter had already weakened prices at the North Asian spot market before the virus stifled demand in China.
“With too much LNG, and nowhere left to place it, it looks like a supply correction is needed to balance the market,” Sims said. “We are expecting supply response in some markets like Egypt and potentially in Eastern Australia, where the likes of Shell and APLNG could attempt to sell gas into the domestic Queensland gas market. However, it is US Gulf producers who have the highest marginal cost of supply and the most flexibility,” he stressed, implying there might be some shut-ins of liquefaction capacity along the Gulf of Mexico.