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Simon Watkins

Simon Watkins

Simon Watkins is a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for…

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China Tightens Its Grip On Qatar With New LNG Contract

  • China and Qatar have signed another long-term LNG contract, with Qatar set to send 1 million tons per annum to China starting in 2024
  • As a key U.S. ally and the location of a major U.S. airbase, the growing influence of China on Qatar should be a serious worry for Washington
  • Qatar’s growing energy relationships with Iran, Russia, and China reinforce just how influential energy supply and demand are on geopolitics

Another new long-term contract for Qatar to supply China with liquefied natural gas (LNG) was signed last week, this time between QatarEnergy and Guangdong Energy Group Natural Gas Co for one million tons per annum of LNG starting 2024 and ending in 2034, although it can be extended. “We are pleased to enter into this long-term supply agreement with Guangdong Energy Group and look forward to establishing a successful and mutually rewarding relationship,” said Saad Sherida Al-Kaabi, the minister of energy affairs, and the president and chief executive officer of QatarEnergy. As hinted at in this comment, Qatar’s relationship with China is broader and deeper than just LNG and the extent of the two countries’ LNG dealings over the last year provides a figurative barometer for the closeness of their relationship in this highly sensitive area of the Middle East. This is particularly concerning for Washington, given that the U.S.’ huge Al Udeid airbase in Qatar is a forward operating headquarters of its Central Command (CentComm).

Qatar has long eschewed unequivocally aligning itself further with the U.S. directly or with any of its proxies in the Middle East, most notably Saudi Arabia. In January 2019, when it left OPEC after 60 years as a member, Saad Sherida al-Kaabi stated that the decision was: “Not political, it was purely a business decision for Qatar’s future strategy towards the energy sector.” It was, though, in reality, a highly political decision, founded partly on disaffection with being caught in the negative economic fallout of Saudi Arabia’s disastrous – but repeated - attempts to destroy or disable the U.S.’s shale oil sector through oil price wars, as analyzed in-depth in my new book on the global oil markets. This antipathy towards toeing the Saudis’ idiotic strategies was bolstered when Saudi Arabia attempted to cause Qatar further direct economic damage by instigating a blockade against it from June 2017 (to January 2021), supposedly for providing support to various Islamist groups, including the Muslim Brotherhood. Qatar publicly acknowledged that this was true as far as the Muslim Brotherhood went but privately railed at the hypocrisy of the Saudis. In this context – and one of the crucial reasons why the initial public offering of Saudi state flagship hydrocarbons company, Aramco, was not able to list in any major international financial center – Qatar alluded to Saudi Arabia’s own suspected links to terrorism, with 15 of the 19 hijackers in the ‘9/11’ attacks on the U.S. being Saudi nationals. 

Another reason – and arguably an even more important one – for Qatar avoiding further alignment with the U.S. directly or indirectly, is its inextricable links to Iran, Saudi Arabia’s (and the US.’s nemesis) in the region. Even a cursory understanding of the global hydrocarbons market would indicate that this ‘co-operation’ is required due to Qatar and Iran sharing a huge natural gas field (the 3,700 square kilometer ‘South Pars’ site on the Iran side and the 6,000 square kilometer ‘North Dome’ site on the Qatar side) and that Qatar has little choice but to co-ordinate policies and activities relating to it. Qatar had long accused Iran, with good reason, of over-exploiting its side of the world’s largest natural gas field to the detriment of Qatar’s ability in the future to tap the gas reserves on its side, particularly as Qatar had a moratorium over further development of North Dome from 2005 until the end of the first quarter of 2017. Following the U.S.’s unilateral withdrawal from the Joint Comprehensive Plan of Action (JCPOA) with Iran in May 2018, senior figures from Iran’s Petroleum Ministry and Qatar’s Energy Ministry began a series of meetings to agree on a new North Dome-South Pars joint development plan. Related: European Gas Prices Soar On Nord Stream 2 Block In Germany 

“It covered two main areas: first, Iran agreed to stop the aggressive recovery tactics that it had been using along the border areas [demarcating South Pars and North Field] and second Qatar agreed to sit down with the Chinese and the Russians to discuss the future co-ordination of gas export destinations for Iranian, Qatari and Russian gas flows, marketing and pricing,” a senior source who works closely with Iran’s Petroleum Ministry told OilPrice.com. “At that time, Iran and China were talking about expanding the scope of the previously agreed 25-year deal between them and Russia was keen to ensure the smooth continuation of its own gas supplies to China [principally via the US$400 billion 30-year deal agreed in May 2014] and to ensure that Iranian gas did not take the place of Russian gas – and influence – in Europe,” he added. “One of the core elements that was agreed at these meetings was that Iran would not continue with developments on its side of the reservoir in South Pars that might damage the Qatari gas take from its North Dome field, leaving Qatar free to increase its LNG export volumes with a guaranteed buyer in China, and Iran in the meantime would receive assistance as and when required from Qatar on building out its own LNG capabilities,” he underlined.

Following this, Qatar did indeed announce that it was to embark on a dramatic expansion in the development of its North Dome field, and its state corporate proxy Qatar Petroleum (QP) announced a targeted increase in its LNG production by 2024 to around 110 mtpa from the current 77 million tonnes per annum (mtpa) or so and then to 126 mtpa by 2027. This would be done in the first part by building four new mega-train production facilities of just over eight mtpa each, with invitations to bid for the whole or parts of this project sent out in August 2019, although QP reserved the right to go it alone. Given the previously long-running Asian LNG premium over trading hub prices, Qatar understandably is focussing on increasing its share in the Asian market, and China especially. Indeed, there is a slew of new LNG-related projects planned across the region and, according to the International Energy Agency, Southeast Asian countries especially will increasingly drive LNG demand in the coming 10 years, with the region set to become a major net gas importer by 2040, at around 10 bcm of gas. 

Given this, there has been a swathe of deals between Qatar and China in the LNG sector, with an early notable example – that set a template for subsequent deals – being the long-term purchase and sales agreement by the China Petroleum & Chemical Corp. (Sinopec) and Qatar Petroleum for 2 mtpa of LNG for a term of 10 years. Following these early deals with China, Qatar then signed LNG supply agreements with Iranian (and Chinese and Russian) ally, Pakistan – specifically, a 10-year sale and purchase agreement for Qatar Petroleum to supply the Pakistan State Oil Company with up to 3 million tons per annum (mtpa) of LNG to various ports in the country. This agreement builds on the earlier deal signed in 2016 for Qatar to supply Pakistan with 3.75 mtpa of LNG and came at around the same time as close Pakistan ally, Bangladesh, made a similar deal with Qatar. 

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on December 16 2021 said:
    The author has a tendency to add a geopolitical gloss to every energy issue. While he might be right to do so in some cases, he isn’t right this time vis-à-vis Qatari LNG supplies to China. This is a purely business deal with no geopolitical involvement.

    The bulk of Qatar’s LNG exports go to the Asia-Pacific region. China is the world’s largest importer of energy (oil, gas and LNG). It has already overtaken Japan this year to become the world’s largest importer of LNG.

    Therefore, it is natural that China is signing one LNG deal after the other with Qatar, the world's largest producer and exporter. Qatar is encouraging this trend and extremely happy about it because this ensures a steady market for its LNG and with the world’s largest energy market to boot.

    This is of paramount importance for Qatar as it has already embarked on expanding its LNG production capacity from 77 million tons a year (mt/y) currently to 110 mt/y by 2024 and then to 126 mt/y by 2027.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment




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