The Coronavirus is scaring investors in LNG stocks, but the industry isn’t panicking just yet
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Several industries reliant on the Chinese economy such as tourism and the daigou sector have been hit by the coronavirus, but what about liquified natural gas (LNG)?
Last financial year China was the second largest buyer of Australian LNG, which accounted for 46 per cent of the Asian powerhouse’s LNG imports.
Japan took the top spot, buying 39 per cent of Australian exports — 2.3 million tonnes more than China.
One LNG metric, the Platts Japan/Korea marker, has halved since October. Bloomberg reported that Chinese state-owned LNG importers were considering declaring force majeure on contracted cargo deliveries.
EnergyQuest projected Australia would pass Qatar as the world’s largest LNG exporter. The industry delivered $50.5 billion in export revenue for the country, coming in only behind coal and iron ore.
But are things now doom and gloom with the projected fall off in heavy demand from China? The performance of ASX stocks involved in LNG would suggest so.
Unfortunately, coronavirus fears have led to big sell-0ffs in global markets.
The only small cap in the sector is Liquefied Natural Gas (ASX:LNG) which has two potential LNG projects in North America. It also owns a unique liquefaction technology. Since mid-January it has lost over 30 per cent.
There are a few large caps with exposure to LNG. The most substantial is is Woodside Petroleum (ASX:WPL) which controls over 6 per cent of global LNG supply. Woodside fell too, but to a lesser degree, losing 8 per cent in two weeks.
Origin Energy (ASX:ORG) is the upstream operator for Australia Pacific LNG in the Surat and Bowen Basins in Queensland. It has fallen 13 per cent in a fortnight.
Santos (ASX:STO) also operates in Queensland. Its LNG is transported from its acreage in central Queensland by pipeline to the LNG storage facility at Curtis Island, off the coast of Gladstone. The last fortnight has seen an 8 per cent decline.
Meanwhile, Oil Search (ASX:OSH) has a 29 per cent stake in the ExxonMobil-operated LNG project in Papua New Guinea. It also holds interests in the Elk-Antelope and P’nyang gas fields which are expected to underpin the proposed construction of three additional LNG trains.
Oil Search is the most affected of the large caps, shedding 16 per cent in two weeks. But much of this was due to the government suspending negotiations on the P’nyang Gas Agreement, which was one of two other projects designed to expand PNG’s gas exportation industry.
The industry, however, does not appear to be in panic mode — at least not yet.
EnergyQuest CEO Dr Graeme Bethune told Stockhead it was too early to tell if there was an impact on LNG exporters. If there was, the impact would be because of oil prices rather than the coronavirus.
“There’s no real clear impact on Australian LNG projects at this stage,” he said.
“A large part of Australian LNG is linked to oil prices, they have come down but more oil prices than LNG prices.
“And what I have taken an interest in is where LNG tankers were circling around unable to discharge in China; there were stories over the weekend about cargoes being deferred.
“There was no sign of that happening in relation to Australia. The ones heading to China were discharging. So there is no obvious impact at this stage other than the fall in oil price.
“Brent oil price which was in the mid $60s [in January] is down into the mid $50s. But prices [in contracts] are lagged by about three months. To the extent there’s an impact, we won’t see it for a few months.”
He also stressed prices had a tendency to fluctuate quickly, pointing to last month’s US-Iran crisis which led to a brief spike.
Some economists labelled this the biggest shock since the GFC. But Dr Bethune said this did not come close to equalling that plunge.
“There’ve been plenty of shocks [since the GFC], the OPEC decision in 2014 was a major shock — the [oil] price fell from $100 to $30. Within that context this is minor.”
The falling oil price has led to speculation OPEC could call an emergency meeting within days. This would likely involve further production cuts. But Dr Bethune said, “they’re limited in how far they can cut.”