Energy Central Professional


Qatar Petroleum signs new long-term Chinese LNG supply deal

Country Report  



    On September 29th state-owned Qatar Petroleum (QP) announced a sales and purchase agreement to supply a subsidiary of China National Offshore Oil Corporation (CNOOC, a Chinese state firm) with 3.5m tonnes/year (t/y) of liquefied natural gas (LNG) for 15 years starting in January.


    The deal is consistent both with QP's drive to lock in fresh long-term demand (to absorb production from a planned 64% expansion of LNG capacity and from existing contracts nearing expiry) and with China's increasing use of gas to replace coal in power generation. A 23% increase in LNG purchases to 51.8m tonnes in the year to end-August (driven by the economic rebound from the coronavirus pandemic) allowed China to overtake Japan for the first time as the world's largest importer of LNG during the period, and with that position expected to be retained for the foreseeable future, securing a substantial slice of the market is a priority for QP. A ten-year deal to supply 1m t/y to Chinese customers was signed in June and the latest deal takes the volume under contract to China to about 15.5m t/y (about 12% of Qatar's planned capacity by 2027). Reports indicate that a small stake in QP's flagship North Field expansion project, for which QP is expected to select international partners for the US$18.75bn first phase (which will increase output from 77m t/y to 110m t/y by end-2025), could be sold to a Chinese parastatal. A final investment decision on the 16m-t/y second phase is expected in early 2022.

    Global gas shortages have driven spot LNG prices to record highs in recent weeks, working to the advantage of those, like the majority of QP's Asian buyers, buying under long-term oil-indexed contracts. Mindful of its ongoing marketing drive, QP has shown flexibility in servicing the deals, ramping up volumes in line with high demand in the same way that they were adjusted downwards in 2020 at the peak of the pandemic-induced consumption slump. However, the level of price volatility also renders it a difficult time to strike new long-term supply agreements. Neither QP nor CNOOC disclosed pricing arrangements, although China has been calling for alternative forms of indexation, either to oil or to emerging LNG benchmarks.

    Impact on the forecast

    The supply agreement confirms our forecast that QP will prioritise locking in new long-term LNG demand, and that China will play a central role in its future sales.


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