Singapore — Seaborne oil and gas trade in Asia has faced growing disruptions in the past week due to the coronavirus, or Covid-19, outbreak in China including delayed shipments, longer port queues and logistical bottlenecks, according to several shipping indicators.
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As buyers, sellers and trading intermediaries struggle to cope with the impact of the outbreak, which showed few signs of abating, market participants expect the oil and gas supply chain to continue to see demurrage being paid for late deliveries and last-minute trade diversions in coming weeks.
"Since the beginning of February, we have spotted 14 LNG vessels, initially expected to deliver their cargoes in the Far East, to have diverted," Nathalie Leconte, LNG market analyst at data intelligence firm Kpler said.
Leconte said more than half of these LNG carriers are expected to deliver their cargoes to other regions like the UK, Turkey, Bangladesh, Kuwait and India, while six of them were still expected to deliver their cargoes to ports in the Asia Pacific.
In addition to these 14 vessels, two other LNG carriers — BW Lilac and Diamond Gas Orchid — were initially headed towards the East of Suez from the US, but were diverted and are currently expected to deliver their cargoes to France instead, Leconte added.
Oil markets have followed suit.
"I've seen cargoes diverting to Malaysia and India from late January. I'd expect more diversions in the February to March loading vessels, but it's a bit too early to find out the new destinations," Emma Li, senior analyst at Refinitiv Oil Research said.
While vessel diversions typically reflect the inability of the buyers to accept deliveries and the cargo owner looking for an alternative discharge location, an increase in stationary vessels without a specific destination also signals stagnant markets.
"We've seen floating storage built in the Malaysia-Singapore area, about 5.86 million barrles added in the first week of February," Li said, adding that floating storage in Chinese waters was not economical as queuing vessels are subject to demurrage.
Kpler's oil shipping analyst Samah Ahmed also said there was an increase in floating storage for crude oil around the Malacca Straits and Singapore since the onset of the virus.
Floating storage in the anchorages around Malaysia and Singapore rose steadily from 5.133 million barrels on January 21, to 17.636 million barrels on February 3, a more than threefold increase in less than two weeks, Kpler's data showed. This remained at around 12.759 million barrels last week.
Several weeks of a contango structure in crude oil markets, which allow traders to make a financial gain from holding onto cargoes until prices rise, and a collapse in tanker rates has favored floating storage economics amid disrupted Chinese demand.
In the LNG space, market participants are also struggling with an oversupplied market, with Platts spot JKM LNG price assessment at a record low of under $3/MMBtu. Dismal market conditions have been exacerbated by the coronavirus outbreak, leaving cargoes with no final destination.
Leconte said on February 6, five LNG floating storage vessels were identified mainly in the Far East, but numbers have now more than quadrupled to 21 LNG carriers.
The coronavirus has triggered quarantine measures in most cargo ports around the world, including oil and gas export and import facilities, causing logistical delays outside China, as well as manpower shortages in China.
Last week, South Korean ports expanded its list of high-risk countries to include Hong Kong and Macau, in addition to China, for enhanced vessel screening measures.
An advisory said cargo operations and disembarkation would only be allowed after a quarantine certificate is issued by the National Quarantine Station officer. Other ports said pilots, who were needed to guide ships into port, were refusing to board LNG carriers arriving from China, despite valid health certificates.
Some ports had to isolate vessels with infected crew at anchorage and disinfect them. One insurance report from China's Xiamen and Shanghai ports said even crew with mild symptoms caused several hours of delay in discharging cargoes due to medical screening.