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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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What Qatar’s Latest Megadeal With China Means For Global LNG Markets

  • Qatar is firming up another huge long-term deal to supply liquefied natural gas to China. 
  • Under the latest deal, Qatar is set to supply China with 4 million tons of LNG per year over the course of 27 years.
  • CNPC will also take a 5 percent equity stake of one LNG train of QatarEnergy’s North Field Expansion gas project.

With Saudi Arabia on one side of it and Iran on the other, Qatar had for a long time to play a delicate diplomatic balancing act between the two great Middle Eastern powers and their principal superpower sponsors. In Saudi Arabia’s case, its key superpower backer for decades was the U.S., of course, and in Iran’s case over the same period it was Russia and then China as well. Following the recent landmark relationship resumption deal between Saudi Arabia and Iran, brokered by China, analysed in depth in my new book on the new global oil market order, there have been fears in Washington that Qatar might slip firmly as well into the China-Russia sphere of influence. This would jeopardise the informal understanding reached between the U.S. and Qatar after Russia’s invasion of Ukraine in February 2022, which was that Qatar would continue to provide the West with vital new supplies of gas to substitute those lost from Russia. According to sources close to the U.S.’s and European Union’s energy security complexes spoken to exclusively by OilPrice.com last week, Qatar is firming up another huge long-term deal to supply liquefied natural gas to China. 

The latest deal involves two parts. The first is a 27-year agreement for Qatar – the world’s largest exporter of LNG – to supply China (in the shape of the China's National Petroleum Corporation, CNPC) with 4 million tons of LNG per year. The second is an agreement for CNPC to also take a 5 percent equity stake of one LNG train of QatarEnergy’s North Field Expansion gas project. On the first part, as also analysed in depth in my new book, from just over one year before Russia’s invasion of Ukraine, China had been engaged in a flurry of activity to expand its sources and methods of gas supply. This began in earnest with Qatar in March 2021 when a  10-year purchase and sales agreement was signed between the China Petroleum & Chemical Corp (Sinopec) and Qatar Petroleum (QP) for 2 million tonnes per annum (mtpa) of LNG. December 2021 saw another major long-term contract for Qatar to supply China with LNG, on that occasion a deal between QatarEnergy and Guangdong Energy Group Natural Gas Co for 1 mtpa of LNG, starting in 2024 and ending in 2034, although it could be extended. A sceptic and/or realist might infer from these deals alone that Chinese President Xi Jinping has been given advanced warning of Russia’s invasion plans for Ukraine by his counterpart Vladimir Putin.

Related: Brazil To Finalize Wind, Hydrogen Framework By Year’s End

Following the invasion in February 2022, China did nothing for a while that might be construed as truly provocative by the U.S. and its allies, particularly those in Europe close to Ukraine. Beijing knew very well that the U.S. had decided to try to rally its NATO allies in drawing a line across Europe over which it would tolerate no further Russian military advances. The key to this, as examined in depth in my new book on the new global oil market order, was to ensure that Europe had sufficient gas and oil supplies to substitute for those they had lost from Russia. In particular, it was crucial that Germany had access to these supplies, as it was not only a huge buyer of Russian gas, and oil, but it was also politically and economically the de facto leader of the European Union alliance. Without Germany’s support for wide-ranging sanctions on Russian gas and oil, the U.S. plan would never work, and Russia’s 2022 invasion of Ukraine would be met with no real consequences, exactly as happened when it annexed Crimea in 2014. Urgency of replacing these supplies was vital at that point, and LNG is the ‘swing supply’ of the gas sector. It can be bought and shipped at very short notice, unlike the costly and time-consuming infrastructure required to move gas through pipelines.

As highlighted in my new book, plans were quickly put into place for Europe to reduce its gas and oil needs for Russia over time, and in the interim to attempt to reduce their energy usage as winter 2022 approached. Qatar emerged as a top candidate to meet these new supply demands for Europe, for two key reasons. The first was that it already had the third-largest gas reserves in the world (after Russia and then Iran), at 872 trillion cubic feet (Tcf). The second was that at the time it had no particular allegiance to either of the major Middle Eastern powers that flanked it, or to China or Russia. May 2022, then, saw Qatar sign a declaration of intent on energy cooperation with Germany aimed at becoming its key supplier of LNG. These new supplies of LNG from Qatar would come into Germany through existing importation routes augmented by new infrastructure approved by the German Bundestag on 19 May 2022. This would include the deployment of four floating LNG import facilities on its northern coast, and two permanent onshore terminals, which were under development. These plans would run in parallel with, but were likely to be finished significantly sooner than, the plans for Qatar to also make available to Germany sizeable supplies of LNG from the Golden Pass terminal on the Gulf Coast of Texas. QatarEnergy holds a 70 percent stake in the project, with the U.S.’s ExxonMobil holding the remainder. The Golden Pass terminal’s estimated send-out capacity is projected to be around 18 million mtpa of LNG and the facility is expected to be operational in 2024.

Following on from these developments, December 2022 saw two sales and purchase agreements signed between QatarEnergy and the U.S.’s ConocoPhillips to export LNG to Germany for at least 15 years from 2026. These deals between Berlin and Doha provided Germany with 2 million mtpa of LNG, sent from Ras Laffan in Qatar to Germany’s northern LNG terminal of Brunsbuettel, according to QatarEnergy’s chief executive officer (also Qatar’s Energy Minister), Saad al-Kaabi. He also stressed the broader political significance of these deals at the time: “[The two sales and repurchase agreements] mark the first ever long-term LNG supply agreements to Germany, with a supply period that extends for at least 15 years, thus contributing to Germany’s long-term energy security.” 

All was looking good for the U.S.’s plans to make Qatar a key gas supplier to Europe in the new global oil market order – until November 2022. This was when a US$60 billion+ deal was struck for QatarEnergy to supply Sinopec with 4 million mtpa of LNG every year for 27 years, starting in 2026. It was at that point China’s longest LNG supply contract and one of its largest in terms of volume. It was also the first supply deal to be announced for the Emirate’s North Field East project, according to al-Kaabi. He added at the time: “We are very happy about this deal with Sinopec because we have had a long-term relationship in the past and this takes our relationship to new heights, as we have a sales and purchase agreement that will last into the 2050s,” he underlined. This now appears to be a deal template that other Chinese oil and gas companies – although they all answer to the Chinese government – may use when it comes to Qatar LNG deals, given last week’s reports of a similar deal in the offing.

Such sizeable and long-term LNG deals with Qatar have three critical advantages for China. First, they are vital to securing access to the world’s swing gas supplies. Second, the global gas and oil market being a ‘zero sum game’ as it is, such access for China from the world’s biggest supplier of LNG means reduced access to these supplies for Europe. And third, it means China’s control over the world’s largest gas resource is strengthened. This is because Qatar’s North Field (on ‘North Dome) is one half of this huge gas reserve, which holds an estimated 1,800 trillion cubic feet (51 trillion cubic metres) of non-associated natural gas and at least 50 billion barrels of natural gas condensates. The other half is Iran’s South Pars gas field. And China took effective control of this, along with the rest of Iran’s gas and oil sector, back in 2018 through the ‘Iran-China 25-Year Comprehensive Cooperation Agreement’. The full contents of this Agreement were first revealed anywhere in the world in my 3 September 2019 article on the subject and are analysed in depth as well in my new book on the new global oil market order.

By Simon Watkins for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on June 29 2023 said:
    While geopolitics is an integral part of energy, the author tends to see geopolitics behind every door and inside every crevice.

    The latest LNG megadeal between Qatar and China signifies two major factors. The first is China’s determination to ensure its energy security and to defend it at any price. Being the world’s largest economy based on purchasing power parity (PPP) and also the world’s biggest consumer of energy, China looks long-term and acts fast to supply the needs of is economy.

    The second factor is that Qatar handles its LNG business like a brilliant and astute businessman ensuring its profitability and continued growth well into the future. It is also determined to continue to be the world’s top exporter of LNG and the cheapest producer with an integrated LNG industry and positive cash flow all the time.

    Qatar has been highly successful in not only signing long-term contracts for its added LNG capacity which will come online in 2024/25 but also getting major investors to finance its expansion among them Shell, ENI, ExxonMobil, TotalEnergies, ConocoPhillips and also China’s Sinopec.

    If the author thinks this is a tilt by Qatar towards China at the expense of the United States, it is his choice. I for one looks at it as a purely successful business serving the mutual interests of both countries.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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