Chinese LNG demand “disappears”

Via The Australian:

“LNG demand has fallen off a cliff since January. An LNG trader just told me Chinese demand has ‘disappeared’, and buyers will be looking at all options.”

The move could prove a major risk for Australia’s LNG export industry, which supplied 46 per cent of Chinese LNG in the 2019 financial year, according to consultancy EnergyQuest.

The bulk of those volumes came from Queensland LNG projects, with the Origin ­Energy-led APLNG venture and Shell’s QCLNG plant both being big ­suppliers to China.

The rapid fall in spot LNG prices will also compound the headache for Chinese buyers who are locked into contracts with Australian exporters, according to Credit Suisse.

…“Chinese LNG buyers are under pressure given the sudden demand weakness in the wake of the virus compounding the difficulty posed by contracted LNG volumes being priced much higher than prevailing spot prices,” Credit Suisse analyst Saul Kavonic said.

“It appears to remain just a ­hypothetical risk at this point, but if force majeure were successfully invoked by Chinese buyers it could see producers forced to sell LNG cargoes into the spot market at prices close to a third of contract prices.”

It is inevitable. If the virus persists, iron ore is next.

Meanwhile, the US supply boom doesn’t care, via Platts:

Utilization at US liquefaction facilities continued its tear Monday, despite record low prices in the Asian end-user market, fears of trade flow disruption from the coronavirus outbreak and tepid demand due to mild weather.

The forward curve continues to show positive netbacks because of cheaper feedgas and falling shipping costs, according to S&P Global Platts Analytics data. While the current market fundamentals would typically incentivize US operators to schedule planned turnarounds, there is no indication that is happening in the near-term. The biggest US LNG exporter said last week it expected a lighter load of maintenance at its Louisiana terminal this year compared with 2019.

Gas deliveries to the six major US liquefaction facilities totaled approximately 9.3 Bcf/d on Monday, near a record level, Platts Analytics data show.

In part this might be the new trade deal. But gas volumes aren’t going to stop until they breach cash costs anyway, which are always much lower than anybody thinks as taxes shrink, labour is cut etc…

LNG is an unfolding disaster internationally.

Of course, that’s no problem for the Australia Tax. We’re now paying double the price of Japan for gas produced here, $5.50Gj versus $11Gj. Hooray!

David Llewellyn-Smith

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Comments

  1. Got any thoughts on a year or so from now when the dust’s settled?

    I think there’s a better than 50/50 chance that this will be viewed by history as the event that triggered the end of the CCP.

    The media that’s leaking out is showing unabashed criticism, anger, and desperation.

    It seems like, with China’s history in mind, they’ve lost the “mandate from heaven” (their version of the social contract).

    I’m not sure there will be a ‘center’ for anything but the direction of the hate and distrust. It might be something approximating ‘every province for itself’. With road blocks already in place due to the virus, it’s not beyond the realm of possibility that they simply reinforce them.
    China has fractured before.

  2. I suspect these LNG exporters are about to learn a very valuable lesson about the difference between business in China and business in Japan.
    In Japan even a simple Memorandum of Understanding is as good as a contract and is highly bankable.
    Whereas in China even an iron clad contract is really just a basis for the next round of negotiation.
    Personally I’ve been there too many times to ever forget that lesson, but I do wonder just where our LNG traders are on the journey towards this realization.
    In a way this is also what I love about business in China, the way that nothing is really set in stone, everything gets continually negotiated and renegotiated.

  3. Jumping jack flash

    Phew!
    Fortunately energy is eminently gougable.
    If there’s any danger, just double the price again to $22/Gj. People will just need to pay or go without. Its not like they can frack in their own backyards, if they even have backyards.

    Imagine the amount of nonproductive mortgage debt that’s attached to that entire industry. It must be kept stable, and at the very least, the interest on that stupidly huge $2tn debt must be repaid.

    • Yeah I remember some time back reading a report that said China has huge Tight gas reserves (shale/coal seam etc) but they weren’t willing to let anyone develop these resources because they feared the backlash of the farmers if Fracking totally fracked things up…good job the Aussie politicians let them frack-up our backyard…it’s not like any of that Aussie land (Liverpool plains etc ) is useful for anything except growing stuff.

      • They don’t have enough water for fracking. Water is too precious for this purpose.

        Using fresh water for energy production is a silly idea especially for a place that needs desal plants.

  4. Feb 2, 2020

    World’s cheapest LNG contract finally ‘in the money’

    LNG spot prices means the North West Shelf venture’s famously cheap LNG sales contract to China may finally be “in the money” for the first time.

    the $25 billion contract with CNOOC for at least 3 million tonnes a year of LNG has been underwater ever since it was signed.

    https://www.afr.com/companies/energy/world-s-cheapest-lng-contract-finally-in-the-money-20200131-p53wo2

    Signed in 2002!

    • That was supposedly signed by John Howard as a reward for Australia naming China as a market economy.

      Consistent with most Australian businesses experience In China which is one of broken dreams and broken promises.