PetroChina suspends some gas contracts as coronavirus hits demand

The company issued the force majeure notice to suppliers of piped gas and also to at least one LNG supplier, though details of the force majeure notice could not immediately be confirmed.

PetroChina, China’s top gas producer and piped gas supplier, did not immediately respond to requests for comment.

A spokesman for state firm KazTransGas which handles gas exports had no immediate comment while Gazprom could not immediately be reached for comment.

A spokesman for Uzbekistan state energy firm Uzbekneftegaz had no immediate comment. Turkmenistan’s gas exporter Turkmenneftegaz could not immediately be reached for comment.

A Turkmen government source said he was not aware of the force majeure. “If this is the case, we hope this measure will be short-term and will not affect long-term, strategic and mutually beneficial Turkmen-Chinese partnership in the gas sector”.

China is one of the world’s top gas and LNG importers, so any cancellation of purchase is expected to have a big impact on prices, traders said.

Force majeure is a clause in contracts, typically referring to unexpected external circumstances that prevent a party to a contract from meeting their obligations.

PetroChina meets 40% of its total gas needs through imports and about 70% of imports are through piped gas from central Asia, Myanmar and Russia while the rest are through LNG, one of the sources said.

“The supply cuts will fall on suppliers proportionately but LNG suppliers will have a lesser impact versus those on piped gas,” said one of the sources with direct knowledge of the situation.

It was not immediately clear what volumes PetroChina had declared force majeure on or the time period the notice covers.

But one major LNG supplier to the Chinese company told Reuters that PetroChina had requested some cargoes be deferred to the third quarter instead.

For piped gas, PetroChina will likely ask for a cut in daily nominations, the first source said.

PetroChina has long-term LNG import contracts with QatarGas, Gorgon LNG in Australia, U.S. firm Cheniere Energy, Papua New Guinea LNG plant as well as an equity stake in Russia’s Yamal project in the Arctic where it lifts cargoes from.

China’s Sinopec also supplies PetroChina during the colder months from mid-November to mid-March under a state-mandated “inter-connected” supply scheme.

The source said senior PetroChina officials recently spoke on phone with Qatari energy officials explaining the demand situation, during which Qatar had pledged to cooperate as much as possible.

“PetroChina has done its best over the past month to mitigate the virus impact, including diverting cargoes to India and Singapore, and tried not to issue such a notice,” the source said.

“But unlike CNOOC (which sent a notice earlier) which may see demand slowing recovering, PetroChina is grappling with a sharp seasonal demand fall from mid-March (for piped gas) when the heating season ends.”

Last month, the country’s top LNG importer China National Offshore Oil Corp (CNOOC) suspended contracts with at least three suppliers, which drove spot LNG prices to a record low. LNG-AS

“Demand is down the hill, especially from mid-March as all the boilers for heating are going to be switched off, while gas consumption from retail users like restaurants and hotels are barely visible yet,” said an executive at one of the north-China based gas receiving terminals operated by PetroChina.

The executive said the operating rate at the regasification terminal in northern China, currently at 30 million cubic metres per day, will fall sharply in the second half of this month as demand drops.

Source; TREND News Agency