Although several cargoes destined for China have been delayed and we have observed some diversions and cargo cancellations, Chinese LNG offtakes in February have remained robust as the government is keen to reinvigorate industrial output. Meanwhile, price conscious buyers in Southeast Asia and the Caribbean are taking advantage of record low prices and soak up some of the excess supply.
On an annual and monthly basis, Chinese LNG demand remains robust
Following rapid import growth in 2019, offtakes in January 2020 had decreased by almost 11% compared to 2019 but were nonetheless 21% higher than in January 2018. When comparing February imports up to and including 23th February, Chinese LNG offtakes were more than 23% higher compared to the same period last year, thus somewhat compensating for the y/y reduction seen in January.
At the time of writing, our LNG Market Tracker indicated that 16 additional cargoes were still scheduled to arrive in China by end-February, suggesting February demand could be further embellished by up to 1.08mmt.
On a daily level imports down compared to 2019, but still significantly higher than in 2018
When adopting a more granular view, recent imports have slowed y/y. China saw 18 LNG offtakes over the last seven days, equating to 0.23mmt less compared to the same period in 2019. However, as highlighted above, imports in January/February 2019 had already seen drastic growth over the equivalent months in 2018. Meanwhile, despite the coronavirus outbreak, imports over the last seven days compared to the equivalent period in 2018 still grew by 0.39mmt.
This, of course, is little consolation for LNG export capacity developers relying on continuous Chinese demand growth. Nevertheless, we can conclude that China’s underlying LNG demand remains robust despite various public measures restricting travel as the Chinese government is keen to reinvigorate industrial output as much and as quickly as possible.
Increase of cargo delays
Importantly, the rise in y/y imports in February was by and large not due to delays originating in January. This does not mean there were no delays at all (presumably reduced staff at various terminals were a contributing factor) but where they occurred the affected vessels still arrived within the month they were supposed to. An isolated case of an inter-month delay was that of the Methane Patricia Camila, which arrived at Zhejiang LNG 4 days late on 3rd February.
Nevertheless, we have also observed an increase in in-month delays for cargoes en route to China. For example, the Al Samriya has stopped just north of Shanghai, having originally been scheduled to arrive at Jiangsu on 21st February.
Still relatively few diversions…
However, the Marvel Pelican, which arrived but was then turned away from Zhejiang LNG on 13th February, has now taken course for Dahej in India. The Pan Africa, originally destined for Zhejiang LNG, has cancelled its wait just outside Chinese territorial waters that had lasted for more than a week. The vessel is now en route to Singapore, presumably to ‘regroup’. Similarly, the Energy Frontier, originally destined for Tianjin but waiting off the Philippines, has now changed course for Singapore. Nevertheless, we do not exclude the possibility of those particular cargoes returning to China. Incidentally, the Prachi, which had been waiting off Singapore, remains on course for Tianjin/Caofeidian.
…but some cargoes were cancelled, and vessels have been idled
Despite Chinese buyers being content with extended charters due to longer waiting times instead of rushing to declare force majeure, some cargoes were not shipped in the first place and vessels idled. This cannot specifically be attributed to the situation in China, but to the generally oversaturated market both in the Pacific and the Atlantic.
As such, the Northwest Sanderling returned to NWS LNG having originally left the terminal laden on 6th February. Concurrently, the Salalah LNG returned to the Persian Gulf and is now scheduled to arrive at Kuwait’s Mina al-Ahmadi terminal on 25th February. Similarly, the Golar Celsius has been idling off Dampier in Australia since 13th February and the Dukhan, out of repair at Singapore, has yet to return to Ras Laffan to pick up a cargo.
Delays not just in the Far East
We highlight that long delays are not just occurring in the Far East. The UK especially seems to have difficulty in receiving the high volume of LNG cargoes arriving from Qatar, the United States and elsewhere. For example, the Gaslog Greece has been waiting to enter Milford Haven since 19th February. Other vessels en route to the UK, such as the Mekaines and the Al Mayeda, may instead opt to wait in the Malta area.
Smaller buyers feast on cheap gas
The relative sluggishness with which LNG is currently received in the Atlantic and the Pacific has allowed traditionally price conscious buyers in countries such as India and the Caribbean to stock up on LNG. Accordingly, imports for buyers in India, Pakistan, Thailand and the Caribbean grew by 1.12mmt (25%) y/y. India in particular has put all of its LNG capacity to use simultaneously for the first time to take advantage of record-low prices.
Flex LNG weathers market storms as Ben Martin joins executive team from TrafiguraNext:
An Updated Look at Current Chinese LNG Demand