Chinese coronavirus lockdown hits LNG, coal exporters

LNG and coal exporters face a nervous wait amid expectations China may cut imports due to the coronavirus outbreak.

Chinese coal importers such as the Shanghai Waigaoqiao Power Generator Company are likely to need less coal due to the coronavrus lockdown. Picture: AFP

Australian LNG and coal exporters face a nervous wait amid expectations China may cut imports as the outbreak of the coronavirus dampens demand for fuels.

Both the Woodside Petroleum-operated North West Shelf plant in Western Australia and Shell’s QCLNG venture in Queensland could take a potential blow after one of their major customers, China’s CNOOC, told buyers it would not take delivery of some LNG contracts.

CNOOC’s decision to declare force majeure on some supply deals, which have yet to be specified, could hit export cargoes from the two LNG projects at a time of oversupply in the market which has pushed spot prices to near-record lows.

Woodside, which supplies 3 million tonnes of LNG to CNOOC from the NW Shelf project, said it was “monitoring for potential impacts on the market”.

Shell, which counts CNOOC as a partner on its Queensland project, declined to comment.

Any move by other Chinese importers to also call on the emergency clause could spiral into a major risk for Australia’s gas export industry which supplied 46 per cent of Chinese LNG in the 2019 financial year.

PetroChina was reported by Bloomberg to have delayed LNG imports for a number of its cargoes with its terminals running at lower capacity due to a drop in available workers resulting from the coronavirus.

The hit from the virus is now expected to pick up pace for the rest of the quarter, according to Goldman Sachs, which sees nearly zero growth in LNG imports from China for three months to March from a prior forecast of an 8.4m tonne a year increase.

“The impact of the virus on economic growth and gas demand … will likely intensify for the remainder of the first quarter of 2020 as government-imposed extended holidays across the country and reduced travel weigh on industrial and commercial activity,” Goldmans said in a research note on Thursday.

Australia’s $70bn coal export industry also faces a mixed picture as the effects of containing the virus filter through to producers. While some Australian coalminers anticipate a growing need for imported coal given logjams or frozen domestic output on the ground in China, others caution that a slowdown for exporters may be imminent.

“In the near-term, because of the coronavirus, coal demand will fall,” S&P Global Ratings said in a briefing on Thursday. “That coal demand weakness will surely impact China’s coal imports and that will likely affect Australian coal producers.”

Australian commodity exporters face difficulty assessing declines in China’s power demand and industrial activity given the lack of transparency over the government’s response to the growing health crisis at a time when trade is traditionally weaker due to the Chinese New Year break.

Whitehaven Coal, a major exporter to other nations in Asia, said it expects Australian producers may take a short-term hit but doesn’t expect any longer lasting damage to export volumes.

“You would expect a short-term response which could limit Australian exports,” Whitehaven chairman Mark Vaile said. “But I do not see that lasting. They will have to continue with projects and construction and demand will return.”

Uncertainty is also emerging around the ability of coal and LNG tankers to deliver supplies to buyers in China and also return to Australian ports.

The 14-day quarantine on Australian vessels that leave mainland China after February 1 could cause delays and bottlenecks at the Queensland LNG port of Gladstone which typically receives ships every few days for loading. Similarly, the number of ships waiting near the giant Newcastle coal port in NSW has risen to 20, Argus Media reports.