Shell sees continued lower Chinese LNG demand into March on coronavirus

London — Shell expects Chinese LNG demand to remain lower than expected into March due to the ongoing coronavirus outbreak in the country, senior company officials said Thursday.

Maarten Wetselaar, Shell's Integrated Gas and New Energies Director, said on a call with reporters that volumes being diverted away from China were, however, finding homes elsewhere, in particular in India.

"We're seeing examples of LNG demand being lower -- particularly in February in China, and extending into March as we see it at the moment," Wetselaar said following the launch of Shell's latest LNG outlook.

"Energy demand in China is significantly impacted across the whole range of energy supply sources because industrial activity is shut down and travel and logistics as well," he said.

Shell had expected the Chinese LNG market to increase by 4 million-6 million mt in 2020, but the impact of the coronavirus means the company has reduced its forecast "a little bit lower," Steve Hill, EVP, Shell Energy, said.

Chinese LNG imports grew by some 18% in 2019 to a total of around 62 million mt, according to state-owned CNPC's Economics and Technology Research Institute.

'We are affected'

Wetselaar said Shell as an LNG supplier had been affected by the reduced LNG demand in China.

"We are large supplier of LNG to China and we are working closely with customers," he said.

He said any cargoes that cannot be absorbed in China would be deferred for delivery at a later date, while current cargoes on the water are being diverted "to find a safe home where they are needed."

"We are affected but we are handling the situation," he said.

Wetselaar said cargoes were being picked up by other countries, pointing to India as a destination that had proven "popular" in recent weeks.

Volumes are still being absorbed, if not by China, he said.

The coronavirus would also be a "transitory" phenomenon, he added. "China will get back to growth," he said, adding that there could even be a period of re-stocking later in the year that would cause a spike in demand.

Supply shut-ins

Asked whether the lower demand caused by the coronavirus could lead to LNG supply shut-ins, Wetselaar said it appeared still to be economic to produce.

"We haven't seen LNG exporting counties dialling down LNG exports in last 12 months even when LNG prices went below $3/MMBtu," he said.

"The marginal economics for continuing to produce have meant people have continued to produce," he said. "And that appears to remain the case today."

Wetselaar added, however, that those exporters most exposed to spot LNG prices would see their export revenues affected.

Hill said, however, that shut-ins were still a "potential possibility" later in the year.

He said European gas prices had fallen so low that if they were to fall further it could trigger shut-ins in US liquefaction capacity.

"The economics are quite marginal," he said, pointing also to Australia as a country "where there is some optionality."