COVID-19 is causing an unprecedented global economic crisis which also affects the LNG industry. In February China’s lockdown seemed to contain the outbreak of the virus but the ensuing pandemic has proven otherwise. Energy prices have plummeted as demand evaporated overnight. While China’s economy took a severe hit due to the lockdown, the country could now benefit significantly as it’s restarting while most of the world is closed for business.
Before the outbreak of COVID-19, the world’s second-largest economy was on the path towards dethroning Japan and becoming the largest LNG importer. Beijing’s coal-to-gas policy was intended to combat rampant air pollution, which led to a surge in demand for cleaner natural gas. China was the largest contributor to global demand growth of supercooled fuel.
Several large producers have set their eyes on the massive Chinese market. While Qatar for years was the dominant LNG producer globally, Australia’s gas sector surpassed the Arab country’s due to Beijing’s insatiable appetite. Doha has lifted the self-imposed moratorium on the massive North Dome field to increase production by 48 megatons/year to 126 until 2027, which is an increase of 15 percent based on global LNG production in 2018. Russia’s LNG strategy is also primarily aimed at the Asian market. Moscow intends to increase capacity to 46-65 megatons/year by 2024 and to 70-82 megatons/year by 2035.
Despite the COVID-19 outbreak in China, LNG imports were still rising during the first two months of this year. A significant part of the natural gas was heading towards storages as most of the Chinese economy was under lockdown. While imports are returning to normal again, state-owned China National Offshore Oil Corporation, the country’s biggest LNG buyer, is largely absent from the market as its storages are mostly full.
However, other Chinese market participants are ready to take advantage of the global LNG glut. According to Edmund Siau, a Singapore-based analyst at energy consultancy FGE, “demand has also been driven by smaller players with storage capacity, who are emerging to take advantage of low spot prices.”
According to Kpler, a Paris-based company providing market data on energy markets, Chinese companies imported about 1.26 million tons of LNG in the week of March 23, which is the first time it’s risen above the 2019 weekly average.