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CNOOC’s force majeure is a fresh blow to struggling LNG market

Many LNG developers and shipping players saw stock market losses as news of CNOOC’s force majeure adds to further fears concerning the health of LNG demand. LNG spot prices in Asia have already fallen to historic lows

The recent coronavirus outbreak has also introduced uncertainty regarding demand for LNG over the near-term, particularly in China, said GasLog

MAJOR liquefied natural gas producers and shipping firms took a battering on the stock markets overnight after news broke of China National Offshore Oil Corp declaring force majeure on an offtake contract, amid the global coronavirus outbreak.

Developers of large-scale US export projects headlined the Wall Street losses. Cheniere Energy’s share price fell to its lowest in more than a year before closing at $57.65, down 3.4%. Tellurian lost 7.4% falling to $7.07 and NextDecade Corp shed 5.6% to finish at $4.70.

Shares of Australia’s largest gas exporter, Woodside Energy dropped down 1.48% at A$33.85 at the close of Sydney’s Friday trading.

Major shipping stocks did not fare any better at the end of New York trading hours on Thursday — GasLog closed 9.26% lower at $5.98, while Golar LNG fell 5.37% to $10.05.

In Frankfurt, Hoegh LNG slipped into the red albeit by a smaller margin of 1.38% to €2.50. 

Kuala Lumpur-listed MISC opened higher at RM8.30 on Friday but tumbled to a low of RM8.05 during morning trading hours. The Petronas-backed shipping line managed to claw back losses to even out yesterday’s close of RM8.25 at 12.29pm Malaysian time.

S&P Global Platts citing unnamed sources, said that CNOOC, the largest LNG importer in China, has declared force majeure on LNG contracts in light of demand disruptions back home spilling over from the coronavirus outbreak.

The Platts-assessed JKM LNG price for Asia trades had already plunged to a record low of $3.15 per million British thermal units on Wednesday, before news of CNOOC’s force majeure move broke.

JKM-linked LNG futures for March delivery traded at $3.555 per mmBtu on Thursday evening.

Prior to CNOOC’s force majeure, Platts Analytics had warned it may cut its February forecast of China’s LNG imports to 207m cu m per day, down 5%-7% or 5m-7m cu m from 222m cu m previously.

Goldman Sachs analysts have also lowered its growth forecast for China’s first quarter of the year LNG imports by 8.4m tonnes per annum to nearly zero year on year, taking in the virus impact and overall slowing demand in the country.

GasLog, on booking a loss for the three months ended December 31 despite higher revenues, highlighted concerns over near-term demand uncertainty for LNG especially in China from the coronavirus outbreak.

It held out the shipping market is still supported by tight supply as evidenced in the early winter run-up in rates for modern tonnage to a peak of $140,000 per day in November.

But ship brokerage Clarksons assessed last year’s average shipping rate at $70,000 per day, down 23% from 2018 levels.

Poten & Partners also pointed to fewer term charters fixed last year — 57 were reported in 2019, down 22% during 2018.

“The very weak current prices and forward curves for natural gas in the key markets of North Asia and Europe are likely to result in shorter average voyage distances and lower shipping requirements, as there is limited scope for inter-basin arbitrage trading,” GasLog said in its latest quarterly financial report.

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