The coronavirus outbreak in China is yet to have a major impact on Australian liquefied natural gas exports but there could be future risks, according to consultancy EnergyQuest.
The outbreak of the deadly virus in China has rocked global markets, with oil prices — to which Australian LNG prices are indexed — and LNG spot prices both falling in January, reflecting an expected fall in Chinese oil demand.
JKM Asian spot LNG price futures dropped from US$4.85 per million British thermal units at the end of December to US$2.99 per million Btu at the end of January.
EnergyQuest noted it was the first time JKM futures had fallen below US$3 per million Btu since the series began in February 2009.
However, Australian LNG projects have limited exposure to spot markets currently, with only two spot cargoes available from Western Australia, one each from the North West Shelf and Ichthys, while one spot cargo was reported for January loading from the east coast, from the Australia Pacific LNG (APLNG) project.
According to data from EnergyQuest, output from Australian LNG projects to China appeared unaffected in January, exporting 40 cargoes to the Asian superpower, up from 38 in December.
While there is potential for delays to cargoes, EnergyQuest said its tracking data suggested LNG shipments from Australia to China had been largely unaffected.
No vessels were seen to be unduly delayed by being held at sea, and 41 Australian cargoes were unloaded in China in January compared to 40 in November 2019 and 35 in December 2019.
"Our tracking data suggests that Australian exports to China have been largely unaffected, at least so far, but as the largest supplier to China, any disruption to cargoes is likely to impact Australian projects, particularly those at Gladstone," said EnergyQuest chief executive Graeme Bethune.
"Notwithstanding these market shocks, it was pretty much business as usual for the Australian LNG projects in January."
China is a key customer for Australia’s LNG exporters, with 36% of the country’s exported gas being shipped there, making it the second largest buyer of Australian LNG, behind Japan.
While January deliveries appeared unaffected by the coronavirus outbreak, the future is less certain, with PetroChina declaring a force majeure on 3 February following a request from the Chinese government.
EnergyQuest noted that PetroChina could not discharge cargoes as it could not secure workers at the receiving terminals due to the outbreak of the virus.
It also highlighted a sharp decrease in gas demand leading to rising inventories at gas receiving terminals, meaning there was no room for new cargoes.
It has also been reported China National Offshore Oil Corporation (CNOOC) is no longer accepting deliveries at its receiving terminals.
Sinopec, meanwhile, has indicated that is considering a declaration of force majeure but is yet to take that step.
PetroChina has contracts with Chevron's Gorgon LNG project, CNOOC has contracts with Queensland Curtis LNG (QCLNG) and Sinopec has substantial contracts with APLNG where it holds a 25% stake in the project.
“A couple of Chinese end-users reported that while port closures had not been put in place for the most of the country, there were other circumstances under which they could declare force majeure — regional quarantines could result in companies not being able to receive or transit goods, for example,” EnergyQuest said in its report.
“Chinese buyers pointed out that this move could provide some relief to end-users who had been struggling with high inventories even before the coronavirus outbreak.”
However, EnergyQuest claimed that, even if all Chinese state-owned companies declare force-majeure, they were unlikely to stop taking their entire term volumes of gas.
There also currently appears to be little risk to China’s ships being prevented from collecting cargoes.
While health screening on ship crews arriving from China has been upgraded, the Australian government has apparently said no restrictions will come in the way of regular operations of LNG ships loading cargoes, according to EnergyQuest.
It added that it was currently unclear just how much Chinese LNG intake will be reduced, but did highlight prices had plunged to US$2.90 — US$3.20 per million Btu for deliveries in the second half of March and US$2.75 — U$3.05 per million Btu for May deliveries.
EnergyQuest also highlighted that Australia’s east coast LNG projects are heavily exposed to China, with 85% of APLNG and 67% of Queensland Curtis LNG production being delivered to China in January.
Other projects also remain exposed with 42% of Pluto LNG January exports destined for China, 38% from Gorgon, 27% from Ichthys, 26% from the North West Shelf, 24% from Gladstone and Darwin LNG and 9% from Gladstone LNG.
Shell’s Prelude floating LNG development had the least exposure, with no cargoes from the project being shipped to China in January, however the project is currently offline following power issues earlier this month.
However, EnergyQuest cited sources claiming a halt to production would have no great impact for Prelude given both historically low spot prices and the coronavirus dampening demand.
Overall, Australia maintained its crown as the world’s largest exporter of LNG in January, with shipments amounting to 82.2 million tonnes per annum on an annualised basis, above second placed Qatar’s 77 million tpa nameplate capacity.
In total, Australia exported 7 million tonnes of LNG, via 103 cargoes, in January, down slightly on December’s 7.1 million tonne record, from 104 cargoes.