In the face of the novel coronavirus, the energy producers are facing the most significant demand shock to hit the markets in decades. The Covid-19 outbreak has already claimed thousands of casualties.
UBS recently warned that the pandemic could bring down the global economic growth to near negative levels during the first quarter of 2020. The energy sector, including the natural gas prices, tumbled to historical lows and is down nearly 15% since the start of 2020.
The global LNG leader Royal Dutch Shell warned that the coronavirus outbreak is already affecting LNG demand, forcing rerouting of supplies previously headed for China. Ira Joseph, global head of power and gas analytics at S&P Global Platts stated that the coronavirus outbreak was seen acting more as a catalyst for this historic price collapse. Analysts say that the situation might not improve any time soon.
LNG prices in Asia have sunk to below $3/mmBtu as China rejected shipments, forcing traders to look for other markets. In Europe, a major destination for U.S. liquefied natural gas (LNG), the coronavirus effect caused natural gas prices to spiral. The April Dutch Title Transfer Facility (TTF) contract fell nearly 6% recently to $2.867/MMBtu, while the U.K.’s National Balancing Point (NBP) lost more than 4% to finish at $2.812.
In Italy, which has been hardest hit by the virus and locked down since last week, gas demand for power generation declined by nearly 20%. Industrial gas use also declined by almost 10% compared to the same time in 2019, according to French energy management firm Schneider Electric.
The Royal Dutch Shell Chief Executive Ben van Beurden said that the coronavirus would keep a lot of people on edge. He added that it was a very concerning development and they were monitoring very closely what was happening.
Demand is likely to drop further across the continent, with more countries announcing lockdowns, and other measures designed to manage the spread of the virus better. The concerns over the coronavirus outbreak and its potential impact on demand also had natural gas futures trading sharply lower recently. In conclusion, the demand impacts from efforts to contain the spread of the coronavirus could be considerable.