More LNG cargo deferrals eyed because of Covid-19

South Korea's largest LNG importer state-owned Kogas may be the latest importer to fall victim to coronavirus-hit LNG demand. And industry participants expect importers in Japan to be next, with Tokyo and six other prefectures now in their second day of a month-long state of emergency.

Kogas has approached a few of its key suppliers, including Qatargas and Malaysia's state-owned Petronas, to request a delay in its May-October deliveries as it faces high storage levels and difficulties in receiving term cargoes because of softer demand, according to industry participants close to the subject. Kogas could not be reached for comment.

A source close to Petronas said discussions between Kogas and Petronas' operations team are under way regarding the deferrals request, while a source close to Kogas said the firm sent an official letter to Qatargas requesting a postponement of as many as 16-18 cargoes that are scheduled to be delivered between May and October.

The aggregate number of cargoes that Kogas is seeking to defer is unclear. But the firm has three contracts with its largest supplier Qatar totalling around 9mn t/yr, of which two of the contracts totalling around 4mn t/yr are on a des basis and the remaining 5mn t/yr contract is on a fob basis. A deferral of six months' worth of all Kogas' Qatari des cargoes from May-October would affect a total of 33 cargoes, while a deferral of all its des and fob volumes would affect 58 cargoes, assuming a cargo size of 60,000t. Kogas has a 2mn t/yr contract with Petronas for supplies from its Bintulu facility in Malaysia.

Kogas imports LNG from other sources such as Australia's 7.8mn t/yr Gladstone LNG and Prelude plants, Oman's 10.4mn t/yr Qalhat facility, the Sabine Pass facility in the US, Indonesia's 2mn t/yr Donggi Senoro LNG plant and Russia's Sakhalin LNG plant. It also has portfolio supply contracts with Shell and Total.

South Korean demand for LNG for power generation has been weaker since last year, following the restart of more nuclear reactors. A mild winter has also kept storage levels at Kogas' LNG receiving terminals high. And measures to restrict social interaction in the country has weakened gas demand further.

South Korea put in place a strict 15-day social distancing policy on 21 March, which has been extended further by two weeks to 20 April. The policy has led to a closure of schools and high-risk public facilities, while offices have been urged to shut and employees have been asked to work from home. The country's Centers for Disease Control and Prevention confirmed 53 new cases on 8 April, bringing the total number of confirmed coronavirus cases to 10,384.

But the social distancing measures have not curbed regular demand from other South Korean buyers such as state-owned Korean Midland Power (Komipo), Posco International, Prism Energy, GS Energy and GS Caltex. These firms typically import cargoes through the 1.7mn t/yr Gwangyang receiving terminal and the 3mn t/yr Boryeong LNG terminal.

Posco International and Komipo on 7 April bought a second-half May delivery to the 1.7mn t/yr Gwangyang terminal at around $2.60/mn Btu. Two other South Korean firms are each currently seeking a second-half May cargo on a bilateral basis.

Several other Asian LNG consuming countries, including India, Malaysia, Singapore and Pakistan, have in the last month imposed restrictions on public gatherings and followed to varying degrees in the footsteps of China, which ordered a lockdown across many of its cities and provinces.

China's state-owned LNG importer CNOOC declared force majeure (FM) on its LNG term supplies after the country's lockdown order, and fellow state-owned LNG importer PetroChina subsequently followed with a similar move. CNOOC's actions sent Asian spot LNG prices to a new low in mid-February. The ANEA price, the Argus assessment for spot deliveries to northeast Asia including China, plunged by around 50pc to $2.675/mn Btu on 17 February from $5.38/mn Btu on 2 January.

And India's state-owned Petronet's recent move to declare FM on its supplies from Qatar and Australia's 15.6mn t/yr Gorgon facility almost immediately after the Indian government imposed a nationwide lockdown on 25 March drove prices to their all-time low of $2.295/mn Btu on 2 April. Petronet was in talks with Qatar to defer cargoes because the Qatari firm was under no obligation to agree to the FM. As many as eight Qatari cargoes were on offer in the spot market soon after the lockdown as a result of the deferral request.

Petronet has a 7.5mn t/yr term supply agreement with Qatargas, which started in 2004. The volumes are sold to state-owned buyers Gail, IOC and Bharat Petroleum at a ratio of 60:30:10, respectively. The contracted volume is equivalent to around 10-11 cargoes a month, based on a cargo size of 60,000t.

By Camille Klass