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China's biggest LNG buyers mulling force majeure amid virus fight: sources

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China's big state-owned liquefied natural gas (LNG) importers are considering force majeure declarations on contracted cargo deliveries as they grapple with the impact from the novel coronavirus, according to people with knowledge of the situation.

[SINGAPORE] China's big state-owned liquefied natural gas (LNG) importers are considering force majeure declarations on contracted cargo deliveries as they grapple with the impact from the novel coronavirus, according to people with knowledge of the situation.

The fight against the deadly virus is threatening China's economic growth and is casting a cloud over energy demand. The nation's oil consumption is already estimated to have dropped by 20 per cent, which is expected to cause fuel makers to cut back production and seek to delay some oil shipments. A decline in gas demand is similarly forcing buyers to consider postponing deliveries to cope with high inventories.

The LNG importers, including China National Offshore Oil Corp (CNOOC), are still assessing the impact on consumption and haven't decided yet whether to make the declarations, said the people, who asked not to be identified as the information isn't public. Firms declare force majeure when they're unable to meet contractual obligations for reason beyond their control.

A drop in China's natural gas demand would likely leave little outlet for additional imports as the nation has been grappling with high inventories over the last few months amid milder-than-normal winter temperature. And any disruption or cancellation of cargoes to China would put more pressure on Asian spot LNG prices, which are already trading at the lowest level in a decade amid a global glut of supply.

CNOOC and PetroChina Co have begun drafting the necessary documents to issue the declarations, in case they decide to move ahead, said the people. Sinopec Corp is also considering force majeure.

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PetroChina and Sinopec declined to comment. Nobody answered multiple calls to CNOOC.

China said last week that it would offer support to companies that sought to declare force majeure on international contracts. The announcement came as provinces accounting for two-thirds of China's gross domestic product extended the Chinese New Year holiday until at least the second week of February, prolonging the shutdown of factories that produce everything from cellular phones to sneakers.

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