Asian LNG price plunges to record low as virus crimps demand

[SHANGHAI] Asia's natural gas price plunged to a record low on concerns the spread of the deadly virus that has stricken China will hurt demand already weakened by an unusually mild winter.

The Platts Japan/Korea marker, a benchmark for liquefied natural gas, tumbled to US$3.512 per million British thermal units, half the spot market rate in October when the heating season starts. Prices are falling as China braces for weaker economic growth due to the novel coronavirus outbreak that threatens energy demand and the country's supply chain.

"Fears focus on the novel coronavirus's impact on China's industrial demand - much of which is still operating at very reduced capacity rates, but which contributes to 60-70 per cent of total LNG consumption in the world's second-largest importer," said Ciaran Roe, global director of LNG at S&P Global Platts.

China's big state-owned LNG importers are considering force majeure declarations on contracted cargo deliveries. Firms resort to that option when they're unable to meet contractual obligations for reason beyond their control. No decisions have been made yet.

Spot prices for liquefied natural gas delivered to North Asia were already expected to plummet to a record low this year after two two mild winters damped consumption in the world's three biggest buyers -- Japan, China and South Korea -- while the market struggled to absorb new production from the US, Russia and Australia.

Shippers may be taking preventative measures against the virus, according to ship data provider Kpler. LNG vessel Al Kharsaah changed its destination to the Tianjin LNG terminal in northern China on Feb 2 from the Zhejiang terminal near Shanghai, an area with the highest number of confirmed cases outside Hubei where the virus originated.

The market is also watching any impact on shipping if vessels that unloaded in Chinese terminals are quarantined. Gulf Agency Co (Australia) said that commercial vessels that left mainland China on or after Feb 1 may be subject to a 14-day quarantine before being allowed entry into Australia.

"I would not be surprised, it is a normal practice in the maritime industry," said Keith Bainbridge, managing director for CS LNG, an LNG shipping consultancy in London. "For any LNG ship that has been in China recently it is only natural that they have to announce that, and it is up for ports they are going to to declare any health restrictions."

Slowing Chinese demand will echo in other parts of the world.

Europe, which is already seeing a record inflow of LNG cargoes not wanted in Asia, is also awash with gas in a mild winter and inventories in storage sites at a 10-year high.

Front-month gas in Britain dropped to the lowest in more than a decade on Monday. The Dutch equivalent has shed 21 per cent since the start of the year.

BLOOMBERG