China signs a 27-year gas deal with QatarEnergy to secure supply in November 2022:
In the most extended LNG supply agreement to date, QatarEnergy has agreed to provide China’s Sinopec with liquefied natural gas (LNG) over a 27-year period as market instability prompts consumers to look for reliable long-term supplies. Since Russia’s invasion of Ukraine in February, there has been a fierce rivalry for LNG. Europe needs a lot of it to help replace Russian pipeline gas, which accounted for roughly 40% of the continent’s imports.
The head of QatarEnergy, Saad al-Kaabi, told the Reuters news agency that soon before signing the Sinopec contract, European businesses wishing to purchase LNG needed to look at how Asian customers were conducting their own discussions and were willing to lock into long-term deals.
The first sales and purchase agreement (SPA) for the North Field East project, which is for 4 million tonnes over a 27-year period with Sinopec of China, reached a significant milestone today, according to al-Kaabi. In a Doha interview, he stated that the contract was the biggest single sales and purchase agreement in the history of the LNG business, adding that it “means long-term deals are here and significant for both seller and buyer.”
The North Field is a portion of the largest gas field in the world, which Qatar and Iran both name South Pars. The first and larger of the two phases of the North Field development plan, North Field East (NFE), involves six LNG trains that would increase Qatar’s liquefaction capacity to 126 million tonnes per year by 2027 from 77 million. QatarEnergy secured five deals for NFE earlier this year.
For North Field South (NFS), the second phase of the expansion, it subsequently negotiated contracts with three partners. The supply agreement revealed on Monday is the first to be confirmed by Sinopec. This strengthens our bond even further because our SPA will last until the year 2050, according to Al-Kaabi.
As Europe looks for alternatives to Russian flows, Qatar is already the top LNG exporter in the world. Its North Field development project will strengthen that position and help assure long-term supplies of gas to Europe.
According to al-Kaabi, the recent volatility has made customers realize how critical it is to have a stable, long-term supply that is properly priced.
There aren’t many projects that are taking final investment decisions, but the next two significant LNG capacity additions are North Field East and North Field South and Golden Pass LNG, which we developed in partnership with ExxonMobil in Texas.
“The wind doesn’t blow all the time and the sun doesn’t shine all the time,” he said, adding that Qatari LNG is “a solution that has the least carbon intensity”. The pricing of the Sinopec deal will be similar to others in the past that were linked to crude oil.
“The way we’re pricing our deals with Asia is crudely linked. We’ve done it this way in the past and that’s the mechanism we’re using going forward.” The deal was signed on an ex-ship basis, meaning QatarEnergy will provide the shipping and delivery of the LNG. Al-Kaabi added negotiations for an equity stake in the Gulf country’s expansion project were ongoing with several entities.
The supply contract is a key component for an integrated partnership in the NFE, Sinopec said in a statement, indicating it could be involved in stake negotiations.
QatarEnergy has maintained a 75 percent stake overall in the expansion and could give up to a 5 percent stake from its holding to some buyers, Al-Kaabi said.
“Important buyers that want to commit for the long term on a substantial volume want to see part of the benefits of the upstream business … so I think it’s an important win if you will and it makes the partnership even more solid.”
Qatar is already the world’s top LNG exporter and its North Field expansion project will boost that position and help guarantee long-term supplies of gas to Europe as the continent seeks alternatives to Russian flows. China is getting particularly close to Qatar’s Gulf neighbors the United Arab Emirates and Saudi Arabia, with which energy ties are expanding.
Last month, the Saudi and Chinese energy ministers pledged further cooperation regarding oil markets, hydrogen, and more. In August, Sinopec and Aramco signed a cooperation deal. The United Arab Emirates also purchased military aircraft from China in February 2022.
This article is written by Ms. Aimen Jamil, executive director of the youth diplomacy forum. she is interested in global politics, economy, diplomatic affairs, energy cooperation, and Global Development.