Citigroup pegs the amount of gas demand lost in China due to Covid-19 at around 8 billion cubic meters (Bcm), down by nearly one-third of an average month’s consumption.
Early signs of China’s economic recovery were overrated by analysts in the hope of a quick rebound in oil and gas demand of the world’s largest commodities buyer. However, the Shanghai Petroleum & Natural Gas Exchange cautioned that the oversupply situation remains relatively unchanged, hence LNG imports are expected to remain sluggish through April.
Power generation in China notched up in April, after falling by a staggering 8.2% in January and February when the country was on lockdown to contain the coronavirus pandemic. Factory output in the first two month of 2020 turned out 13.5% lower from the pre-year period, while retail sales plunged by 20.5%, according to government data.
Invokes force majeure amid demand destruction
Fuel demand has faltered, with state-owned energy major CNPC indicating it has fallen by as much as 26% during the first quarter of the year. Hence, PetroChina on March 5 suspended gas imports - both LNG and pipeline gas, citing force majeure.
CNOCC in early February had already sent force majeure notices to its key suppliers, notably Shell and Total which both disputed the legal grounds of this instrument and have since called for compensation. "We have received one force majeure that we have rejected," said Philippe Sauquet, head of Total's gas, renewables and power unit.
Gazprom had been taken by surprise by PetroChina’s halt in gas import but has since closed the $55 billion Power of Siberia Pipeline, allegedly for maintenance. The shutdown started in mid-March and is expected to last for a good two weeks.
Invoking force majeure to put off LNG deliveries is "contractually complex," cautioned Wood Mackenzies’s research director Robert Sims. "Contract wording will need to specifically include epidemics as force majeure events," he said. "Demand reduction on its own or a notice by a relevant Chinese government authority will likely be insufficient."