Asian liquefied natural gas (LNG) prices have collapsed over fears of the potential demand destruction from the coronavirus outbreak, according to analysts, and the latest news out of China suggests those fears have been realized.

Goldman Sachs Commodities Research analysts in a note to clients late Wednesday said the Japan Korea Marker (JKM) had fallen close to $1/MMBtu in a two-week span, sending the April-May contract average to 10 cents below the Dutch Title Transfer Facility (aka TTF) price.

“This narrowing of the JKM-TTF spread reflects the market’s concern that the outbreak will significantly lower Asian demand for LNG and, as a result, greatly increase the excess supply in the market,” said the Goldman analysts, led by Samantha Dart and Damien Courvalin. Dart and Courvalin noted that the arbitrage (aka arb) window for U.S. LNG exporters has also narrowed.

Given that the coronavirus is expected to continue hampering demand, Goldman lowered its forecast for 1Q2020 Chinese LNG imports growth by 8.4 million metric tons/year (mmty) to near zero year/year. This coincides with Goldman economists downgrading China’s anticipated gross domestic product (GDP) growth for the period to 4.0% from 5.6%.

Economists at IHS Markit Thursday said they expect the coronavirus to have a larger negative effect on global GDP than the 2003 SARS outbreak, noting that China now accounts for a significantly larger share of the world economy.

“If the current and unprecedented confinement measures in China stay in place until the end of February, and are lifted progressively beginning in March, the resulting economic impact will be concentrated in the first half of 2020, with a reduction of global real GDP of 0.8% in 1Q2020 and 0.5% in 2Q2020,” said IHS economists Todd Lee and Elisabeth Waelbroeck Rocha.

“In this scenario, the coronavirus and resulting measures will reduce global real GDP by 0.4% in 2020. Conversely, we expect the lifting of the confinement measures to add 0.4% to global real GDP in 2021, as the release in pent-up demand filters through the economy.”

As for the energy impacts specifically, the anticipated decline in China’s LNG imports comes as reports circulated Thursday that state-run China National Offshore Oil Corp. (CNOOC) declared a force majeure amid the outbreak, meaning the LNG buyer is rejecting some contracted shipments as efforts to contain the coronavirus disrupt shipping traffic and demand.

Total SA’s Philippe Sauqet, who heads the Gas, Renewables and Power segment, addressed the situation in China during an event on Thursday to discuss the Paris-based supermajor’s latest financial results.

The warm winter in Asia has meant “there are a lot of customers who have committed long-term who have too much LNG,” Sauqet said. These customers under long-term contracts might experience “a strong temptation…to try to play with the force majeure concept” to take advantage of cheaper pricing in the spot market. “It might get a bit more serious with coronavirus.”

Sauquet said at least one Chinese customer is “trying to use coronavirus to say, ‘I have force majeure, the terms cannot be used; I have real force majeure.’

“…We have received one force majeure that we have rejected because our legal analysts said there is no force majeure. I would say it’s the way we negotiate on an ongoing basis with the Chinese.”

Sauquet said Total, a major LNG supplier, still needs “to be careful.” If a longer-term situation arises in which LNG cargoes can’t be offloaded at Chinese terminals because of the virus, then Total could reassess because then “there might be a real case for force majeure.”

For now, Sauquet said “ordinary negotiation” is ongoing.

Stateside, the news coming out of the CNOOC is only likely to exacerbate fears of U.S. LNG shut-ins as one of the world’s largest buyers curbs its appetite at a time when the globe is already awash in supply.

“We believe the bearish sentiment in the market was further exacerbated by January Chinese LNG import data” showing a year/year decline, the Goldman analysts said. “Since the virus outbreak did not escalate significantly until late in the month, the weak import data likely created the impression that Chinese gas demand was already exceptionally weak even prior to the outbreak.”

A reduction in Chinese LNG imports during the first quarter increases the risk of excess LNG flooding into Europe and triggering a further price response, according to the Goldman analysts.

“Importantly, our downward revision of Chinese LNG imports in 1Q2020 exacerbates our estimated excess supply in global LNG markets and, as a result, our expected (residual) LNG deliveries to Europe,” the Goldman team said. “…Accordingly, we see an increased risk that the Northwest European gas market becomes so oversupplied that even an export cut from Norway might not be enough to avoid a breach in storage capacity.

“In this scenario we believe European gas prices would likely move lower to trigger the next level of supply response, arguably the cancelation of U.S. LNG exports…Consistent with this view, the latest TTF and JKM moves have indeed narrowed the U.S. LNG export arb, nearly shutting it altogether for April deliveries in Asia.”

Chinese buying of U.S. LNG has been a casualty of the Trump administration’s trade war with Beijing, making the direct impact to domestic markets less clear-cut.

Despite a phase one trade deal between the United States and China that was signed to ease tensions last month, “there is still no indication of Chinese buying of U.S. cargoes,” said Energy Aspects’ James Waddell, senior global gas analyst in London.

“The impact of the coronavirus is therefore unlikely to dent Chinese buying of U.S. cargoes specifically,” he said earlier this week. “But the likely slowdown in demand will further detract from the already depressed demand in” North Asia, which has been “offering unprofitable netbacks to U.S. export facilities since the middle of last month.”