PetroChina Co. Ltd.'s declaration that it would suspend natural gas imports because of the coronavirus outbreak is unlikely to be a direct threat to U.S. LNG suppliers despite presenting yet another negative development for global gas markets as volatility increased due to mounting concerns over the epidemic.

Declaring force majeure is an uncommon step that allows a company to not perform on contractual obligations because of circumstances the company cannot control instead of commercial considerations. Amid trade flow restrictions due to the deepening crisis created by the outbreak — which put further pressure on an already depressed market due to weaker than expected demand and low international prices — the subject has been brought into greater focus.

Suppliers to PetroChina have confirmed the force majeure declaration, said Jason Feer, head of business intelligence at oil and gas ship broker Poten & Partners. That declaration followed contested attempts in early February by China's top exporter China National Offshore Oil Corp., or CNOOC, to suspend its deliveries of LNG.

Cheniere Energy Inc. has two long-term contracts with PetroChina for a combined 1.2 million tonnes per annum of LNG. Only a small portion is in effect, with shipments on the balance starting in 2023.

Cheniere declined to comment on whether PetroChina's force majeure declaration applies to its contracts with the company.

Cheniere's contracts are typically robust and able to accommodate flexibility. If a customer declared a force majeure, Cheniere would try to work with the customer. Asked whether that type of discussion could end up in arbitration, Cheniere's chief commercial officer, Anatol Feygin, said in a March 6 interview that "that's a case by case basis with a high bar."

"End market conditions in and of themselves are not a cause for force majeure," Feygin said. "At this point it's still kind of unimaginable to me that there is physically no place to go. "

Separately, the biggest U.S. LNG exporter said previously that it was notified of cancellations of two loadings scheduled for April — one from its Sabine Pass terminal in Louisiana, and the other from its terminal near Corpus Christi, Texas. Customers generally have until March 20 to notify it about any changes in their intentions for May.

Feygin said it is too early to tell if there will be more cancellations.

"The second quarter for energy in general is a lower demand quarter than any other part of the year," he said. "Right now the market is actually moderately firmer for May and June than it was a couple weeks ago."

Feygin said on a Feb. 25 investor call that in general, "some LNG on the margin may not be lifted from the U.S. this year," though the company does not expect that to develop into a long-term trend. Cheniere's long-term contracts are take-or-pay, so the exporter would receive a fee whether cargoes are lifted or not. Declaration of force majeure events, however, could allow customers to avoid having to comply with contract terms.

The bulk of U.S. LNG producers' active contracts with buyers call for free-on-board deliveries of LNG. Buyers in such an arrangement take on the ownership and the risk of an LNG cargo once it is loaded onto a ship. They are also free to take the cargo to any destination.

The window for a force majeure would be narrow, relating to a technical issue with a specific incoming ship, for example, executives have said.

LNG sellers take on more risk in delivered ex ship contracts. The seller in a delivered ex ship contract assumes the full cost and risk in delivering a cargo to its destination port. But supply tied to such contracts do not yet count for "a material amount of current LNG cargoes," S&P Global Ratings said in a recent report.

"Today I actually don't see the global LNG market that long," Feygin said in the interview. "A lot of what you've seen recently has substantially rebalanced the market, especially if you adjust for a second non-winter winter in a row. We don't see any stress globally in being able to place cargoes physically."

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.