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China’s LNG price hit record low as epidemic hurts demand, analysts cut forecasts

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Price of liquefied natural gas (LNG) on China’s spot market hit a record low this week and analysts cut their gas demand forecasts, as the coronavirus outbreak depresses industrial, commercial and transportation appetite over the next few months.

The spot price of LNG fell to $2.76 per million British thermal units (mmBtu) Wednesday, a 62 per cent drop from a year earlier, according to commodity market information provider JLC.

The price plunged 30 per cent from late January when the epidemic started spreading beyond its epicenter in Wuhan.

China’s industrial or commercial gas demand has already fallen as a result of the extension of the Chinese New Year holidays in early February,” said Alicia Wee, analyst at consultancy FGE.

Analysts have cut their estimates for China’s LNG demand this year. Global energy consultancy Wood Mackenzie said China’s natural gas demand could drop between 6 billion cubic meters and 14 billion cubic meters this year, depending on how long the coronavirus outbreak will last.

China’s LNG demand is now only expected to grow by 4 per cent year-on-year, compared with previous estimates of 13 per cent, analysts from Bernstein said.

The coronavirus outbreak will “significantly impact” the country’s LNG demand, curbing 49 cargoes – 3.3mt – destined for China until May, said analysts at Poten & Partners.

Most of the impact would be felt this month, with about 20 fewer cargoes than expected now due, according to an updated LNG market outlook released late on Thursday.

By the end of the first week of February, China’s gas demand fell by 2 billion cubic meters, mainly driven by the industrial sector, according to Mackenzie.

Sun Xuelian, natural gas industry analyst at JLC, said the LNG price usually rebounds after the Lunar New Year holidays, which often take place in February. But the coronavirus outbreak has led to extended holidays nationwide, dampening the price recovery. Businesses have started to resume operations this week, but many companies have decided to remain closed awhile longer to monitor the virus situation.

Nationwide consumption of LNG totaled 48.8 million cubic meters Feb. 10, 36 million cubic meters less than on Jan. 23, according to JLC. The same day, only 25.2 per cent of China’s LNG processing capacity was in operation, down 21 per cent from Jan. 23.

Weakening demand from China is also putting pressure on the global natural gas market. The US Energy Information Administration (EIA) warned Tuesday in a report that downward pressure on gas prices in the U.S. partly reflects warm weather.

EIA said it expects US spot gas prices to remain below $2.00 per mmBtu this month and next. In January, the Henry Hub natural gas spot price averaged $2.02 per mmBtu.

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