China National Offshore Oil Corp (CNOOC) has sent notices asking suppliers to accept force majeure on up to half of its cargoes set to arrive this month, and potentially more down the line, according to a report from Poten & Partners.
The move comes amid growing concerns that the Wuhan coronavirus outbreak could hit spot markets as the demand for Chinese commodities slides.
"The coronavirus outbreak is having a significant effect on Chinese LNG imports, forcing LNG buyers and sellers to scramble to mitigate the impact of disruptions on demand and the market," the ship and commodities broker said.
"[CNOOC] has declared force majeure on many cargoes and it and other imports are looking to delay or defer cargoes scheduled for delivery for February through April."
CNOOC is China's largest LNG importer and the Far Eastern country is the second-largest importer of LNG in the world.
The report said as many as 35 cargoes could be subject to force majeure declarations.
Bloomberg reported on Friday that energy majors Total and Shell had rejected force majeure claims by CNOOC. This would mean the majors would likely claim compensation if CNOOC cancelled its contracted shipments.
Meanwhile, Poten said suppliers have pushed back, arguing high storage levels and the spread between spot prices and term volumes were not valid reasons for the declarations.
The coronavirus outbreak comes amid demand declines, due to a warm winter and falling gas prices.
TradeWinds had already reported at least five LNG carriers had been diverted from Chinese ports as concerns rise over possible diversions.
Unlike China National Offshore Oil Corp (CNOOC), Poten said PetroChina and Sinopec have not issued any force majeure declarations and were looking to defer cargoes instead.
According to statistics from the World Health Organization, there were 3,151 new cases of coronavirus in China last Friday, bringing the total there to 31,211 and globally to 31,481. All but one of the 637 deaths have come in China.
Gas carrier stocks lower
New York-traded LNG carrier owners were down across the board last Friday, except for Hoegh LNG Partners, which rose $0.65 — or 5.3% — to $12.92.
Teekay LNG Partners fell $0.16 (1.23%) to $12.89 and GasLog dropped $0.22 (3.76%) to $5.76, but the biggest hits were felt by the Golar companies.
Golar LNG Partners fell $0.46 (8.16%) to $5.18 and Golar LNG dropped $0.35 (3.48%) to $9.70.
Deutsche Bank analyst Chris Snyder said Golar LNG should not be affected, despite the bad news.
"The reports carry negative implications for the LNG commodity and shipping market," he wrote in a Friday afternoon note. "However, we do not expect Golar's existing LNG infrastructure business to be impacted.
"This is important as the infrastructure projects drives 90% of the company's value, per our sum-of-the-parts model."
