SHEL Shell Plc

By Sarah McFarlane 

Royal Dutch Shell PLC, the global leader in liquefied natural gas sales, said Thursday that coronavirus was hurting demand for the supercooled fuel and prompting it to reschedule or locate new buyers for cargoes previously allocated to the Chinese market.

The global LNG market is more balanced after a four-year wave of new supply, the energy giant said, even with coronavirus crimping demand and sending prices to record lows since the outbreak began.

Growth in LNG production will halve this year, Shell said in its annual LNG outlook, forecasting an additional 20 million tons of supply, after a record 40 million tons was added in 2019. The effects of coronavirus weren't included in its projections, the company said.

Coronavirus has caused a slowdown in industrial activity in China, as well as hitting energy demand for travel and logistics.

China -- one of the top three global importers of LNG -- had been expected to absorb up to six million tons, or around one-third of the additional supplies in 2020 before the outbreak of the virus. This volume is now expected to be lower, Shell said, without giving revised figures.

Shell accounts for around a fifth of the world's LNG supply and, alongside Qatar Petroleum and Total SA, is one of China's top suppliers of the fuel.

"We are affected and handling the situation," said Maarten Wetselaar, Shell's director of integrated gas and new energies.

It would be "imprudent" to give any guidance on the volumes affected, given the situation is ongoing, Mr. Wetselaar said.

Earlier this month, China National Offshore Oil Corp., which buys about 40% of China's LNG, declared force majeure on cargoes supplied by Total, BP and Shell, according to tanker brokers and owners and a Chinese oil executive. At the time, Shell declined to comment.

In its quest to improve air quality, along with its growing energy demand, China has become the world's largest gas importer, with LNG imports doubling in the two years to the end of 2018. Electricity generation from natural gas emits roughly half the amount of greenhouse gas emissions than coal.

The Asian LNG price benchmark -- the Japan Korea Marker -- recently dipped to below $3 per million British thermal units, hitting a record low on Friday in the wake of the coronavirus. The lower prices were helping to attract buyers for LNG cargoes previously destined for China, "for example, India has been a popular destination," said Mr. Wetselaar.

New York-based ship broker Poten & Partners estimates China will cut LNG imports by 49 cargoes, or 3.3 million tons, between February and April.

Shell said the slowdown in additional global supplies is expected to be temporary, given that a record amount of new capacity was committed to in 2019, when investment decisions were taken on 71 million tons of new supply -- around 40% of which was in the U.S.

Shell forecasts that gas and renewables combined will supply around 80% of the growth in global energy demand in the coming 20 years. Within the gas segment, LNG is expected to grow faster than pipeline supply, at 4% a year over that period, Shell said.

Write to Sarah McFarlane at sarah.mcfarlane@wsj.com

(END) Dow Jones Newswires

February 20, 2020 10:21 ET (15:21 GMT)

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