Qatar set to strike second big LNG supply deal with China

Qatar is set to secure a second huge gas supply deal with a Chinese state-controlled company in less than a year, in a sign of the energy-hungry Asia power rushing to secure long-term agreements with one of the world’s top exporters of liquefied natural gas.

China National Petroleum Corporation and QatarEnergy are expected to sign a 27-year agreement on Tuesday, under which China will purchase 4mn tonnes of LNG a year from the Gulf state, said people briefed on the matter. CNPC will also take a 5 per cent equity in Qatar’s expansion project in its North Field, the world’s biggest natural gas reservoir, as a joint venture partner.

The agreement comes just seven months after China’s Sinopec reached a similar 27-year deal with QatarEnergy, which at the time the Gulf state described as “the longest gas supply agreement in the history of the LNG industry”.

QatarEnergy declined to comment on the agreement.

The state-owned company has been courted by governments and energy companies across Europe and Asia as it pushes ahead with the $30bn expansion of its North Field, which will increase its domestic LNG production capacity from 77mn tonnes of LNG per annum to 110mn by 2025 and to 126mn tonnes two years later.

Saad al-Kaabi, Qatar’s energy minister, told the Financial Times that he expected to sign long-term supply agreements with “several European countries” before the end of the year.

He said QatarEnergy was close to sealing deals with the UK, France and Italy.

“We have been, and continuously are, in discussions with different companies to supply gas into the UK and we expect that before the end of the year, we could probably have a deal done,” said Kaabi, who is also chief executive of QatarEnergy. “We are going to have several European deals before the end of the year — for sure, 100 per cent.”

He said there were still some “commercial issues” to be finalised with the UK, which has been in talks with Qatar for about two years to lock in longer-term LNG supplies from the Gulf state.

QatarEnergy is the majority owner of South Hook LNG terminal in Wales, which has the capacity to supply a fifth of the UK’s gas needs. In 2020, it also secured rights for storage and redelivery capacity at the UK’s Grain LNG terminal in Kent for 25 years from 2025.

As one of the few energy producers that have been investing heavily in additional gas capacity in recent years, QatarEnergy has become a focal point for European countries desperate to wean themselves off Russian gas.

In May, European natural gas prices fell back to their normal trading range for the first time since the start of the energy crisis that followed Russia’s invasion of Ukraine last year.

But they rose sharply again in June, underscoring how the market remains on the edge over gas supplies, despite storage levels at record highs for the time of year.

While European governments courted Qatar in the early days of the energy crisis, they have proven slower to sign contracts, particularly the kind of very long-term deals Qatar is keen to secure for its own financial future. Germany is so far the only European country to sign a significant long-term agreement with Qatar since Russia’s full-scale invasion of Ukraine, with analysts pointing to concerns about balancing short-term energy security with commitments to reduce emissions.

The bulk of Qatar’s LNG is shipped to Asia, but Kaabi said he hoped it would be split more evenly between the east and west in the future to give the Gulf state diverse markets.

He added that he was happy that prices had come down from their highs in 2021, but warned that they could go back up if global economies picked up next year and there were normal winter temperatures.

“Whether the spike is as dramatic as what happened with Ukraine, I doubt because I think that’s a very unique situation. But I think we are going to see prices going higher,” said Kaabi.

Despite Europe’s gas storage sites being more than 70 per cent full, Kaabi warned there would still be a shortfall if economic growth rebounded.

“You don’t have much volume coming in to fill it even further,” he said. “Once you don’t replenish it for one summer, you get hit for two winters.”