* Notice covers CNOOC's LNG purchases for Feb-March - source
* LNG traders looking for alternative destinations
* CNOOC already grappling with oversupply - traders
(Adds lawyer's comment, Sinopec, Shell declined comment)
By Jessica Jaganathan and Chen Aizhu
SINGAPORE, Feb 6 (Reuters) - China National Offshore Oil
Corp (CNOOC), the country's biggest importer of liquefied
natural gas (LNG), has suspended contracts with at least three
suppliers amid the rapid spread of the coronavirus, two sources
said on Thursday.
They said CNOOC, which operates nearly half the terminals in
China that receive LNG, had declared force majeure, which allows
companies to suspend their obligation to fulfil contracts after
unexpected events such as strikes and natural disasters.
The biggest suppliers of LNG to CNOOC include Anglo-Dutch
energy company Royal Dutch Shell, France's Total
, Australia's Woodside Petroleum and Qatargas,
industry sources said.
The force majeure notice covers CNOOC's LNG purchases for
February and March, one of the two sources said.
China is the world's second-largest importer of LNG, and its
spot purchases of the super-chilled fuel and other energy
products have almost ground to a halt as the coronavirus spreads
rapidly throughout the country.
LNG traders said they were scrambling to divert shipments or
find new outlets for cargoes destined for China, driving spot
prices for LNG in Asia <LNG-AS> to record lows.
"China was the place we sent cargoes to if demand was weak
elsewhere in Asia but now people are trying to find alternative
locations," one of the traders said.
The sources with knowledge of CNOOC's move declined to be
named due to the sensitivity of the matter.
No further details were immediately available and a CNOOC
spokeswoman did not answer calls from Reuters.
A Chinese international trade promotion agency said last
week it would offer force majeure certificates to companies
struggling with the fallout from the epidemic to give to their
overseas partners.
WORKING FLAT OUT
China's PetroChina and Sinopec also
supply CNOOC during the colder months from mid-November to
mid-March under a state-mandated "inter-connected" supply
scheme, another industry official with knowledge of the matter
said.
It was not immediately clear which of CNOOC's LNG suppliers
had been issued with a force majeure notice.
A Woodside representative said the company was closely
monitoring the situation. Sinopec and Shell declined to comment
and other suppliers were not immediately available for comment.
It was also not clear which unforeseen event CNOOC had cited
when declaring force majeure.
Even before the outbreak of the virus, CNOOC had been
offering to resell LNG cargoes because Chinese buyers have been
struggling to shift high levels of stocks amid weak demand due
to a slowing economy and a milder winter.
Baldev Bhinder, managing director of law firm Blackstone &
Gold, said Chinese buyers may have difficulty establishing a
link between the virus and their inability to fulfil contracts.
"That is where I see Chinese buyers having difficulty
because weak demand and lower prices, which were already in play
independent of the virus, cannot in itself establish force
majeure causation," said Bhinder.
But if crew members were affected or terminals were closed
to contain the spread of the virus, then there would be a
stronger case, he said.
A top executive at an LNG terminal in northern China
operated by PetroChina said its 80 staff has been working flat
out on shifts since before the Lunar New Year break.
"With demand plunging, our tanks are topping. And workers
are getting exhausted waiting for colleagues to return from
holiday to relieve them," said the executive.
(Reporting by Jessica Jaganathan, Chen Aizhu and Shu Zhang;
Additional reporting by Sonali Paul in Melbourne; Editing by Tom
Hogue and David Clarke)
