In 2016, when colder-than-average temperatures were felt across much of northern and eastern China, the sector saw a boost to both power and gas use in space heating. Winter gas demand grew by over 20 per cent year on year as a result.
The average winter temperature in north and northeast China was 1 to 2 degrees Celsius lower than normal during the past five La Niña events since 2000, according to China’s National Climate Centre.
However, the current backdrop for the Chinese LNG market is decidedly different to 2016. Demand has been impacted by the global pandemic. The collapse in coal prices has also seen thermal coal regain some market share.
Chinese importers have overcome some recent challenges when heavy rain and a typhoon caused unloading delays at various terminals on the country’s east coast. Should this La Niña winter bring lower temperatures then we could see even greater year-on-year growth through the fourth quarter of 2020 in particular.
The potentially stronger demand could be magnified by an acceleration in coal-to-gas switching. Even with consumers in China being moved to natural gas as a source of heating, colder than normal weather should also benefit thermal coal demand.
Northern and eastern China power stations operate their coal-fired plants at higher utilisation levels. This will ultimately result in a boost to demand via restocking of thermal coal inventories.
The La Niña weather system can also have a sizeable impact on oil and gas supply in the US. The Gulf of Mexico area, both onshore and offshore, is one of the most important regions for energy resources and infrastructure.
Gulf of Mexico offshore oil production accounts for 17 per cent of total US crude oil production and offshore natural gas production in the Gulf accounts for 5 per cent of total US dry production.
Over 45 per cent of total US petroleum refining capacity is located along the Gulf coast, as well as 51 per cent of total US natural gas processing plant capacity.
The official hurricane season for the Atlantic Basin is from June 1 to November 30. Already one major hurricane (Laura) has shut down production.
Because hurricanes are relatively easy to forecast and monitor, oil companies can prepare well in advance. This process has been refined over decades, meaning the impact on infrastructure can be mitigated to some degree.
The issue comes after the hurricanes have passed. The more damaging hurricanes can take time to recover from while increased frequency can delay the recovery process even further.
La Niña brings a reprieve to Australia’s parched wheat belt and above-average rainfall in Asia. This will benefit Australian wheat crop and plantation crops like palm oil and cocoa in Asia and Africa, respectively.
While this weather pattern is good for these parts of the world, it causes dry conditions in the Americas. Dry weather in these regions can potentially undermine harvest prospects of crops, depending on the intensity of the event.
Signs of dryness have already been noted in Brazil and Argentina, raising concerns for soybeans and corn plantings. A lack of soil moisture in Brazil is delaying the sowing, leaving risks of follow-on effects on the second Brazilian corn crop.
Argentina is facing similar dry conditions, delaying the ongoing corn and soybeans plantings. US winter wheat crops can be impacted as well and if this dry weather continues until the US summer planting season, then yield prospects of corn and soybeans will be curtailed too.
This looming risk of dry weather can push the prices of grains - corn and soybeans - higher and could tickle down to meat prices via higher feed costs.
Daniel Hynes is Senior Commodity Strategist and Soni Kumari is Commodity Strategist at ANZ
This article was originally published on ANZ’s Institutional website