State-owned Qatar Energy (QE) has begun the process of selling equity stakes in its US$28.8bn North Field East (NFE) liquefied natural gas (LNG) expansion project, apportioning the first shares to a group of Western oil majors. QE intends to distribute the holdings widely, with about half each for Asian and European investors, to buttress relationships with major buyers and assist in placing additional volumes.
Why does it matter?
QE has consistently stated its intention to bring international partners into the NFE project (entailing construction of four new LNG trains at Ras Laffan with a combined capacity of 32m tonnes/year) since its launch in 2017-driven by marketing rather than financial imperatives (a final investment decision [FID] was taken over a year ago). Six international oil companies were shortlisted in 2019, but the selection process was delayed by energy market ructions triggered by the coronavirus pandemic. Meanwhile, the majors (increasingly thirsty for LNG assets to decarbonise oil-heavy portfolios) have courted the Qatari firm by allowing it to participate in their high-quality international upstream assets (while the latter has been developing new supply relationships in anticipation of the need to place over 70m t/y of LNG by 2027 from NFE) and the 16m-t/y second phase (North Field South) as existing contracts expire. Such efforts, initially focused on Asia (particularly China), have refocused on Europe this year, in response to the continent's urgent drive to replace Russian gas imports.
The first four stakes went to three long-time partners-Exxon (US), ConocoPhillips (US) and TotalEnergies (France)-and to Eni (Italy), a newcomer to the Qatari energy sector but with ambitious LNG plans and prominent in the EU drive to find alternative international suppliers. Each was allocated a 12.5% or 25% direct stake in a joint venture, with QE owning a single LNG train (adapting a model used in QE's original, incremental LNG build-out, despite the new facilities being built simultaneously), giving them a 3.1-6.25% interest in the overall project company. Chinese state buyers are expected to be allocated stakes shortly, and we forecast that negotiations with other European (notably German) buyers will be conducted in tandem with those on supply agreements. QE intends to reach FID on the NFE project and assign foreign shareholdings in the first half of 2023.
We expect QE to sell off additional stakes in the NFE project in the coming months, and the next partners are likely to comprise Asian and further European buyers-both made newly willing to accept the company's tough financial terms by the current tight gas market. The two-phase LNG expansion will bolster Qatari real GDP growth and improve fiscal and external balances from 2026.