Coronavirus poses growing risk to US LNG export markets

New York — The coronavirus outbreak has already begun cutting demand for natural gas from industrial end-users and power generators in gas markets worldwide, posing an emerging threat to US LNG exports.

Thus far, China has faced the earliest and most severe impacts from a government-imposed lockdown to economic activity. In January and February, the country's industrial production contracted 13.5% on the year, marking its weakest performance on record. Automobile manufacturing, machine tools and cement production were the hardest hit, recent Chinese macroeconomic data compiled by S&P Global Platts Analytics shows.

Most crucially for LNG exporters, declines in China's manufacturing output and power burn demand contributed to a 3.8% drop in LNG imports to the country in January and a 6.5% decline in February.

While the trade war between Washington and Beijing had previously halted US LNG exports to China last March, the potential for coronavirus-related demand destruction elsewhere raises questions about the possibility for contracting gas demand in some of the US' largest LNG export markets.

Coronavirus hits US LNG export markets

Among the 20 largest national import markets for US LNG cargoes this year, not a single one has escaped the accelerating global pandemic, data from the Johns Hopkins Coronavirus Resources Center shows.

Notably, some of the world's emerging hotspots for newly reported coronavirus cases outside China include Italy (reporting 27,980 cases), Spain (11,309 cases), South Korea (8,320 cases) and France (6,664 cases) – all major importers of US LNG in 2020.

Year to date, South Korea is the largest importer of US LNG taking an average 1.05 Bcf/d, through mid-March. Spain, ranking fifth, has imported an averaged 740 MMcf/d this year, followed by France in sixth place with imports averaging 540 MMcf/d. Italy, in a distant eighth place, represents a smaller market for US LNG cargoes with imports averaging about 395 MMcf/d year to date.

Also notable is that only in South Korea has the number of recently reported coronavirus cases slowed, absent a major and far-reaching government lockdown of the country's economic activity.

In Italy, Spain and France, government efforts to quell the spread of the virus have included significant restrictions on economic activity in recent days and weeks – changes that could negatively impact sectors critical for gas demand including industrial activity and power generation.

While it remains early days to gauge the impact of prohibitions on economic activity – much less LNG import demand – recent data from Italy is suggestive.

According to Platts Analytics, the latest data for March 16 reveals an emerging 7% decline in Italian industrial gas since last week, as compared to the prior three-year average. A recent announcement by two large Italian steel producers, Alfa Acciai and Ferriera Valsabbia, to temporarily shutter operations at key production facilities could add momentum to the emerging trend.