SINGAPORE: China National Offshore Oil Corp. (CNOOC) has declared force majeure on prompt liquefied natural gas (LNG) deliveries from at least three suppliers, two sources told Reuters on Thursday.
This is the first known case of a Chinese company declaring an inability to fulfil a contract amid the economic impact of a fast-spreading coronavirus that has killed more than 560 people.
China is the world’s second-largest importer of LNG, and its spot purchases of the super-chilled fuel and other energy products have ground almost to a halt, but this is the first official declaration of force majeure by a Chinese company.
CNOOC is China’s top importer of LNG and operates nearly half of the country’s total receiving capacity.
LNG traders are scrambling to divert or find new outlets for the cargoes meant for China, several of them told Reuters, driving spot Asian prices to record lows.
“China was the place we sent cargoes to if demand was weak elsewhere in Asia, but now people are trying to find alternative locations,” one of the traders said.
The force majeure notice covers LNG purchase by CNOOC during the periods of February and March, said one of the two sources.
The two sources, both with knowledge of CNOOC’s move, declined to be named due to the sensitivity of the matter.
No further details were immediately available, and calls to a CNOOC spokeswoman went unanswered.
A Chinese international trade promotion agency said last week it would offer force majeure certificates to companies struggling with the impact of the coronavirus epidemic on their business to give to their overseas partners.
The top suppliers of LNG to CNOOC include Royal Dutch Shell, Total, Woodside Petroleum and Qatargas, industry sources said.
China’s own PetroChina and Sinopec also supply CNOOC’s terminals during the winter heating season from mid-November to mid-March, under a government-mandated so-called “inter-connected” supply scheme, said a separate industry official with knowledge of the matter.
It was not clear which of all these companies were issued a force majeure notice.
A Woodside representative said the Australian energy company was closely monitoring the
situation. The other companies were not immediately available
CNOOC had been offering to resell LNG cargoes even before the outbreak of the coronavirus, with Chinese buyers grappling with high inventory amid weak demand due to a slowing economy and a milder-than-usual winter.