Affected by the new coronavirus epidemic’s receiving capacity, CNOOC notified Shell and Total to refuse to accept 35 LNG cargoes as “force majeure”. They were rejected and faced claims. This is one of the first known cases in the world where a force majeure clause has been invoked due to the novel coronavirus epidemic. It is also the first known incident in which a Chinese company has announced that it is unable to perform due to the novel coronavirus epidemic.
CNOOC, the domestic petrochemical leader, refused to accept LNG cargo due to “force majeure”
Chinese LNG importer China National Offshore Oil Corporation said on February 7 it had suspended contracts with at least three suppliers due to the rapid spread of the coronavirus. CNOOC informed its suppliers that it was unable to fulfill some LNG import contracts due to “force majeure” due to the impact of the epidemic. However, this request was rejected by the two major European energy companies.
It is reported that due to the extended Spring Festival holiday and delayed resumption of work due to the epidemic, some of CNOOC’s LNG receiving stations are unable to operate at full capacity due to lack of workers, resulting in a significant reduction in LNG import capacity and raw materials. Markets are also in disarray.
According to foreign media reports, “force majeure” can exempt CNOOC from fulfilling its obligation to receive LNG cargo as stipulated in the contract. However, both Dutch Shell and France’s Total refused to accept CNOOC’s “force majeure” law. in accordance with. This means that although CNOOC may still cancel the delivery of recent LNG cargoes, Shell and Total are likely to seek compensation from CNOOC.
Sources said that CNOOC has issued notices to at least three suppliers, declaring force majeure for the recently delivered LNG cargoes. The notice covers LNG purchases in February and March. There may be further increases in the future. Shipbroker Poten & Partners said up to 35 LNG cargoes may be subject to a “force majeure” notice from CNOOC.
According to Reuters, Philippe Sauquet, head of French Total’s natural gas, renewable energy and power division, said on Thursday that “at least one Chinese customer is trying to use the coronavirus to express its concerns.” Arrived force majeure.” “We have received a force majeure, but we have rejected it.”
Philippe Sauquet said, “Of course, we have to be careful.” “If China all loads If both the port and the port of discharge are segregated, we have a true force majeure. For now, that is not the case.” Companies invoke force majeure when they are unable to fulfill their contractual obligations due to circumstances beyond their control.
CNOOC is one of Total’s largest LNG buyers. In October 2018, Total and CNOOC signed a supplementary agreement to the long-term purchase and sale contract for liquefied natural gas (LNG) to further strengthen cooperation between the two parties in the field of liquefied natural gas. The two parties agreed to increase the contract supply volume from Total’s global LNG resource portfolio from 1 million tons to 1.5 million tons per year, and at the same time extend the contract period to 20 years. The previous long-term purchase and sale agreement was signed in 2008. At that time, the agreement stipulated that the annual contract supply volume was 1 million tons and the contract period was 15 years.
It is understood that CNOOC is also the largest LNG ship owner in China – China LNG Shipping (International) Co., Ltd. (CLSICO), a shareholder of CLSICO, which was established in September 2004 as a joint venture between China Liquefied Natural Gas Shipping (Holdings) Co., Ltd. (CLNG) and CNOOC Energy Development Investment Management (Hong Kong) Co., Ltd. CLSICO is an international professional LNG ship management company with a professional ship management team that manages ships in accordance with international LNG industry standards. All LNG ships operated and managed by the company are built by Hudong-Zhonghua Shipyard.
As the new coronavirus epidemic continues to escalate and causes economic impact, this is the first known case of a Chinese company announcing that it cannot perform its contract, and it is also the first international-level energy company The supplier publicly resisted the buyer’s attempts to withdraw from the contract. Industry sources said the Chinese buyer’s move may raise concerns that Chinese importers, and even those who export oil products to global companies, may use force majeure clauses to avoid long-term contractual obligations.
However, Poten& Partners said that unlike CNOOC, PetroChina and Sinopec did not issue any force majeure notices, but hoped to postpone the delivery of goods.
Under the “black swan” attack of the epidemic, the polyester market: the short-term supply and demand have been greatly impacted, and it is expected to reach a stage starting from the second quarter Sexual explosion!
In order to curb the spread of the epidemic, various places have generally postponed the resumption of work of enterprises, and the petrochemical industry, especially the polyester industry, will inevitably suffer heavy losses. Factors such as disruptions in logistics and transportation, rapid accumulation of finished product inventories, and delays in companies resuming work have had a greater impact on the short-term supply and demand side of the industry. Demand is expected to gradually recover from the second quarter. In the second half of the year, there may be a phased outbreak of demand under policy guidance, but there is corresponding supply pressure. We are also increasing our investment at every level, and we still need to find a balance point under the new supply and demand pattern.
1. The resumption of work of enterprises is slow and the demand for terminal consumer goods is shrinking
Most terminal industries such as plastic products, textiles, tires and other labor-intensive industries will be shut down during the Spring Festival as a rule. Workers return to their hometowns after holidays before the holiday. However, due to the epidemic, various places have issued policies to extend the Spring Festival.� During the holidays, workers are actually less willing to return to work after the holidays.
In addition to the slow return of personnel, factors such as shortage of epidemic prevention materials, poor logistics and transportation, high inventory of finished products, and financial constraints also affect the progress of resumption of work.
Although most provinces and cities require companies to resume work and production starting from February 10, companies must apply to the local government for approval in advance and can only resume work after approval. The resumption time is more common than expected. Delayed by 1-2 weeks, the resumption of work is expected to begin in the week of February 17 at the latest. Some non-local workers will face a 7-14 day quarantine period after returning to the city. The actual resumption rate in various places is still at a low level. Enterprises that have resumed work In the short term, the negative impact will also be reduced.
Affected by the epidemic, orders from end consumer goods companies, especially export companies, have dropped significantly. With the arrival of the peak season for export orders in March, manpower bottlenecks and the wait-and-see mentality of foreign sellers will affect the number of orders.
China is the world’s largest exporter of textiles and clothing. Textile exports account for about 30% of the total domestic textile output value. However, under the influence of the epidemic, domestic and foreign demand has cooled down at the same time. At the same time, before the Spring Festival, domestic gray fabric inventory is already at a high level, causing the current operating rate of looms in East China to drop below 10%, the lowest point in five years.
2. Demand and logistics difficulties are constraining, and the polyester industry generally reduces its burden to cope
This wave of epidemic has a greater impact on the short-term terminal demand of the industry, and gradually radiates from the bottom up to the mid-to-upper reaches. In addition, difficulties in transporting raw materials and finished products caused by logistics and transportation restrictions have also led to varying degrees of burden reduction in various links of the industrial chain.
Many domestic aromatics and olefins units and downstream industrial chains have begun to reduce their load. The load of Shandong refineries fell below 50%, a new low since 2005, and the output of propylene, pure benzene and other products decreased accordingly. At the same time, many domestic integrated refining and naphtha cracking units have also experienced load reductions, and some manufacturers have reduced the load of naphtha cracking units by 10-20%. The load of multiple CTO/MTO units on the inland coal chemical route has dropped to 70-80%, and the operating rate of some MTO units is even lower. The load of the supporting PP and PE equipment is reduced by 10-30%.
Styrene, phenol, caprolactam, aniline and other factories downstream of the mainstream of pure benzene generally reduce their load by 10%-30%. The demand loss of pure benzene in February is expected to be at least 146,000 tons. 12% lower than expected. The lowest operating rate of polyester factories before and after the Spring Festival in the past two years was 70%, but the current operating level has dropped to about 60%. It is expected that the output in February will decrease by about 720,000 tons, and the total annual output may decrease by 1%-1.5% as a result. . The demand for PTA and ethylene glycol has fallen due to the impact of the reduction in downstream polyester factories. ICIS estimates that China’s ethylene glycol demand fell by 20% in February compared with previous expectations, and PTA demand fell by about 15%.
According to analysis by industry insiders, although the new coronavirus pneumonia epidemic is approaching fiercely, under the strict prevention and control measures in various places, it is believed that the spread of the epidemic can be curbed as soon as possible. If the epidemic spreads in 3-4 The demand for polyester industry will gradually recover from the second quarter.
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