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    WoodMac Weighs up Coronavirus Impact on Chinese Gas Demand

Summary

The Edinburgh-based consultancy expects demand to grow 4-6% this year, down from a pre-outbreak forecast of 8%.

by: Joseph Murphy

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WoodMac Weighs up Coronavirus Impact on Chinese Gas Demand

Wood MacKenzie expects the coronavirus outbreak to shave 6-14bn m3 off Chinese gas consumption this year, the UK consultancy said in a research note on February 11.

Demand losses in 2020 had already reached 2bn m3 by the end of the first week of February, WoodMac said. Full-year demand should come to between 316bn m³ and 330bn m3, depending on the severity and duration of the epidemic, up 4-6% compared with the level last year. Prior to the outbreak, it had forecast an 8% growth in demand.

The crisis will have some impact on domestic gas production, but as baseload pipeline gas can be delivered with limited manpower, supply will only be 1.6-2.9bn m3 lower than it would have otherwise been, according to WoodMac.

Harder hit will be LNG imports, which the consultancy estimates could be somewhere between 2.6mn mt and 6.3mn mt lower as a consequence. The outbreak has come at a bad time for the global LNG market, which is already struggling with oversupply.

“With too much LNG, and nowhere left to place it, it looks like a supply correction is needed to balance the market. We are expecting supply response in some markets like Egypt and potentially in eastern Australia, where the likes of Shell and APLNG could attempt to sell gas into the domestic Queensland gas market,” WoodMac research director Robert Sims said. “However, it is US Gulf producers who have the highest marginal cost of supply and the most flexibility.”

China is contracted to take 54mn mt of LNG this year, but some buyers have declared forces majeures on their contracts. WoodMac notes that they might struggle to get suppliers to accept the outbreak as justification for invoking this clause. Their contracts would have to explicitly include epidemics as force majeure events, and they may have to prove that actions were taken to minimise the impact of the outbreak.