Coronavirus curbs LNG demand in China, Japan and South Korea

TOKYO/SHANGHAI/SEOUL — Asian demand for liquefied natural gas, which was driving growth in the global market, is slowing after the novel coronavirus brought industrial activity in the region to a standstill.

The super-chilled natural gas, which emits less greenhouse gas than coal, has become increasingly popular over the past decade in Asian countries from China to Japan and South Korea as a fuel for use in the industrial and electricity sectors. Global demand reached 354.7 million tons in 2019, increasing 13% from the year before.

However, the global pandemic has influenced demand among major Asian importers, due to the halting of factory operations and sluggish demand for electricity.

China, the world’s second largest importer, took in 15.2 million tons of LNG between January and March, a 2% increase compared with the previous year. By contrast, the country saw double-digit growth of imports over 2019, but the pandemic has put the brakes on this trend.

According to energy research company Rystad Energy and government data, China saw 12.1% growth in LNG imports in 2019, but this could drop to a mere 1.8% in 2020, with predictions of imports of 61.3 million tons.

China was leading growth in the global LNG market until 2019, with many national oil companies and oil majors rushing to invest in multi-billion dollar LNG projects. However, since the outbreak of the novel coronavirus, industrial demand has weakened, with Chinese state-owned oil and gas companies declaring force majeure in February, claiming that they cannot receive multiple LNG cargoes.

Cao Chai, a power analyst with London-based research group GlobalData, said, “gross domestic product (GDP) growth will be 1.3% in 2020, lower than 6.1% in 2019. Therefore, we expect the growth of energy demand to be slower.”

As China sees its new coronavirus cases peaking out, the country is resuming economic activity. The country “is gradually recovering demand”, said Xi Nan, vice president of gas market research at Rystad Energy. She said that the Chinese had to take on the deferred cargoes to fulfill contract obligations.

Japan, the world’s largest importer of LNG, imported 7.2 millions tons in March, a decline of 1.2% year-on-year, according to trade statistics.

Rystad estimates that Japan’s imports will decrease 1.2% year-on-year in 2020, to an estimated 76.4 million tons. The government declared a state of emergency in early April and, if the coronavirus pandemic continues for much longer, there is a risk that demand will decrease further.

Japan depends on LNG-fueled power plants for 40% of its electricity needs. Electricity companies have been cautious to prevent cases of infection at LNG receiving terminals and power plants. Once a cluster of infection is confirmed among the operators at those facilities, there is a possibility that they will be forced to halt operations.

The world’s third largest importer of the gas, South Korea, is projected to take in 40.5 million tons in 2020, a 0.5% drop from the previous year. State-owned gas company KOGAS, which is one of the largest LNG importing companies in the world, has requested that oil and gas majors delay the delivery of LNG cargoes for May-October, according to Nan.

The weak demand in Asia will influence investment in LNG projects involving contracts in the region. Moreover, the recent crash in the oil market will have a negative impact on LNG investment, since the price of the gas is linked to the oil price in many contracts. Plummeting revenues have forced oil super majors to slash investment in LNG.

Anglo-Dutch oil group Royal Dutch Shell announced on March 30 its withdrawal from an LNG project in Louisiana in the U.S., while American oil group Exxon Mobile announced in early April that it would postpone its final investment decision on its Mozambique LNG project.

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