QatarEnergy has signed a 27-year deal to supply China’s Sinopec with liquefied natural gas (LNG) in the longest such deal to date, as volatility pushes buyers to seek long-term supplies.
Since Russia’s invasion of Ukraine in February, competition for LNG has become intense, with Europe, in particular, needing large quantities to help replace the Russian gas pipeline which accounted for almost 40% of imports. from the continent.
European companies looking to buy LNG needed to consider how Asian buyers approached their own negotiations and were willing to strike long-term deals, QatarEnergy chief Saad al-Kaabi told Reuters news agency shortly before. the signing of the agreement with Sinopec.
“Today is a milestone for the first sale and purchase agreement (SPA) for the North Field East project, it is 4 million tons for 27 years for Sinopec of China,” said al- Kaabi.
“It means that long-term agreements are there and important for the seller and the buyer,” he said in an interview in Doha, adding that the agreement was the largest sale and purchase agreement. never recorded in the LNG sector.
The North Field is part of the world’s largest gas field that Qatar shares with Iran, which calls its share South Pars.
QatarEnergy signed five agreements earlier this year for North Field East (NFE), the first and largest of North Field’s two-phase expansion plan, which includes six LNG trains that will increase Qatar’s liquefaction capacity to 126 million tonnes per year by 2027 from 77 million.
He then signed contracts with three partners for North Field South (NFS), the second phase of the expansion.
Monday’s deal, confirmed by Sinopec, is the first supply deal announced for NFE.
“It takes our relationship to new heights as we have a SPA that will last into the 2050s,” al-Kaabi said.
“It sends the message that many buyers from Asia are approaching us for a long-term deal because they see that the volumes of gas coming in in the future are getting smaller and smaller.”
Long term supply
al-Kaabi said negotiations with other buyers in China and Europe who wanted security of supply were underway.
Qatar is already the world’s largest LNG exporter, and its planned North Field expansion will strengthen that position and help secure long-term gas supplies to Europe as the continent seeks alternatives to Russian flows.
“Recent volatility has made buyers realize the importance of having a long-term supply that is fixed and reasonably priced for the long term,” al-Kaabi said.
“There are not many projects that make a final investment decision and the next two big chunks of LNG capacity coming to market are Golden Pass LNG which we have in partnership with ExxonMobil in Texas and the next big piece if you will is North Field East and North Field South.
al-Kaabi also said there was more awareness globally that gas should be an essential part of any energy transition.
“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 price of the Sinopec deal will be similar to others in the past that were tied to crude oil.
“The way we value our deals with Asia is tied to crude oil. We’ve done it that way in the past and that’s the mechanism we’re using going forward.
The agreement was signed on an ex-ship basis, which means that QatarEnergy will handle the shipment and delivery of the LNG.
al-Kaabi added that negotiations for an equity stake in the Gulf country’s expansion project were underway with several entities.
The supply contract is a key part of an integrated partnership in the NFE, Sinopec said in a statement, indicating it may be involved in participation negotiations.
QatarEnergy has retained an overall 75% stake in the expansion and may sell up to 5% of its stake to some buyers, al-Kaabi said.
“Major buyers who want to commit long-term to substantial volume want to see some of the profits from the upstream business…so I think that’s a big win if you will and it makes the partnership even more more solid.”