Shell Sees Coronavirus Eroding Chinese Natural Gas Demand
February 20 2020 - 10:36AM
Dow Jones News
By Sarah McFarlane
Royal Dutch Shell PLC, the global leader in liquefied natural
gas sales, said Thursday that coronavirus was hurting demand for
the supercooled fuel and prompting it to reschedule or locate new
buyers for cargoes previously allocated to the Chinese market.
The global LNG market is more balanced after a four-year wave of
new supply, the energy giant said, even with coronavirus crimping
demand and sending prices to record lows since the outbreak
began.
Growth in LNG production will halve this year, Shell said in its
annual LNG outlook, forecasting an additional 20 million tons of
supply, after a record 40 million tons was added in 2019. The
effects of coronavirus weren't included in its projections, the
company said.
Coronavirus has caused a slowdown in industrial activity in
China, as well as hitting energy demand for travel and
logistics.
China -- one of the top three global importers of LNG -- had
been expected to absorb up to six million tons, or around one-third
of the additional supplies in 2020 before the outbreak of the
virus. This volume is now expected to be lower, Shell said, without
giving revised figures.
Shell accounts for around a fifth of the world's LNG supply and,
alongside Qatar Petroleum and Total SA, is one of China's top
suppliers of the fuel.
"We are affected and handling the situation," said Maarten
Wetselaar, Shell's director of integrated gas and new energies.
It would be "imprudent" to give any guidance on the volumes
affected, given the situation is ongoing, Mr. Wetselaar said.
Earlier this month, China National Offshore Oil Corp., which
buys about 40% of China's LNG, declared force majeure on cargoes
supplied by Total, BP and Shell, according to tanker brokers and
owners and a Chinese oil executive. At the time, Shell declined to
comment.
In its quest to improve air quality, along with its growing
energy demand, China has become the world's largest gas importer,
with LNG imports doubling in the two years to the end of 2018.
Electricity generation from natural gas emits roughly half the
amount of greenhouse gas emissions than coal.
The Asian LNG price benchmark -- the Japan Korea Marker --
recently dipped to below $3 per million British thermal units,
hitting a record low on Friday in the wake of the coronavirus. The
lower prices were helping to attract buyers for LNG cargoes
previously destined for China, "for example, India has been a
popular destination," said Mr. Wetselaar.
New York-based ship broker Poten & Partners estimates China
will cut LNG imports by 49 cargoes, or 3.3 million tons, between
February and April.
Shell said the slowdown in additional global supplies is
expected to be temporary, given that a record amount of new
capacity was committed to in 2019, when investment decisions were
taken on 71 million tons of new supply -- around 40% of which was
in the U.S.
Shell forecasts that gas and renewables combined will supply
around 80% of the growth in global energy demand in the coming 20
years. Within the gas segment, LNG is expected to grow faster than
pipeline supply, at 4% a year over that period, Shell said.
Write to Sarah McFarlane at sarah.mcfarlane@wsj.com
(END) Dow Jones Newswires
February 20, 2020 10:21 ET (15:21 GMT)
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