China’s Top Natural Gas Buyer Cancels Imports After Epidemic Hurts Demand 

(Bloomberg) --

China National Petroleum Corp. has issued a force majeure on prompt natural gas imports, according to people with knowledge of the situation, the second Chinese buyer to refuse shipments in a sign that global commodity flows may face a sustained impact from the coronavirus fight.

CNPC, the nation’s biggest gas supplier, is taking the extreme step after initially working with sellers to reschedule shipments, and plans to cancel contracted deliveries both as liquefied natural gas and via pipelines in the short-term, said the people, who asked not to be identified as the information isn’t public. At least one LNG seller had been notified, the people said.

CNPC, the parent company of PetroChina Co., declined to comment.

The nation’s buyers have struggled with the impact of the virus, which has cut demand for the fuel and maxed out storage space. Firms declare force majeure when they’re unable to meet contractual obligations for reasons beyond their control.

China’s biggest suppliers of LNG include Australia, Qatar and Malaysia, while Russia and Central Asian nations -- Turkmenistan, Kazakhstan and Uzbekistan -- as well as Myanmar supply via pipeline. Russia’s Gazprom PJSC, which started pipeline supplies to China in December, said Thursday that shipments continue and that it hasn’t received a force majeure notice.

Last month, China National Offshore Oil Corp. -- the nation’s top LNG importer -- made a similar force majeure declaration, a move that was rejected by some sellers. PetroChina had earlier delayed and rescheduled some LNG shipments. Chinese copper smelter Guangxi Nanguo also declared the same get-out clause in February, refusing to take delivery of raw materials.

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China is the world’s biggest consumer of most raw materials, from energy products to industrial metals, and disruptions in its purchases create havoc across global supply chains. While the nation is making slow but steady progress in its effort to get back to work, CNPC’s force majeure illustrates the lingering impact of the coronavirus outbreak on consumption.

Separately on Thursday, CNPC said that it stopped pulling supplies of gas from storage tanks, and in at least one location has even started injecting it back earlier in the winter than normal, as customers have throttled back consumption amid a broader economic slowdown.

“Natural gas demand has dropped sharply,” the company said on its website, adding that withdrawals have halted at all 10 of its underground storage sites as of Feb. 29. “The volume of gas supplied from China’s storage facilities has fallen rapidly” since late January.

A slowdown in Chinese demand has exacerbated a global glut of LNG, sending spot prices crashing over the last few months. The Japan/Korea Marker, the spot Asian LNG benchmark published by S&P Global Platts, has dropped by about 50% in the past year and last month sank to a record low. Futures on Nymex closed Thursday at $3.085 million British thermal units, heading for the first weekly advance since January.

Cheniere Energy Inc., the largest U.S. exporter, has a supply agreement with CNPC but hasn’t shipped a cargo to China in more than a year because of trade war. Instead, CNPC was swapping the U.S. cargoes with Japan and Korea. Cheniere declined to comment.

--With assistance from Feifei Shen, Alfred Cang, Naureen S. Malik and Olga Tanas.

To contact the reporters on this story: Stephen Stapczynski in Singapore at sstapczynsk1@bloomberg.net;Anna Shiryaevskaya in London at ashiryaevska@bloomberg.net

To contact the editor responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net

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