China’s Sinopec has secured one of the biggest-ever liquefied natural gas deals, signing a 27-year agreement to purchase 4mn tonnes a year of the fuel from QatarEnergy.
The agreement announced on Monday by the state-owned groups comes as Europe races to secure alternative supplies of natural gas in the wake of Russia’s invasion of Ukraine.
The deal “marks the longest gas supply agreement in the history of the LNG industry”, said Saad Sherida al-Kaabi, QatarEnergy’s chief executive and the Gulf state’s energy minister.
He added that it would “further solidify the excellent bilateral relations between the People’s Republic of China and the State of Qatar and help meet China’s growing energy needs”.
The agreement follows a shorter 10-year LNG purchase arrangement signed in 2021 between QatarEnergy and Guangdong Energy Group Natural Gas Company. Company executives said Monday’s move was likely to be followed by further agreements.
“Sinopec attaches great importance to the co-operation with QatarEnergy, who we regard as a strategic, long term and all-round partner, and we are expecting more co-operation fruits to come,” said Ma Yongsheng, Sinopec’s chair.
Germany has also been pursuing Qatari LNG imports, and the two countries signed an energy partnership in May. However, European nations have hesitated over longer-term deals as they plan to move away from fossil fuels in a shorter timeframe.
“This shows how things have changed in the LNG market and how committed the Chinese are to continue the use of gas in the long run within the energy mix,” said Neil Beveridge, a senior energy analyst at Bernstein, who said it was the longest contract he had ever seen.
“It comes at a time when we have been seeing buyers seeking shorter-term contracts and increased flexibility . . . There is a lot of hesitancy amongst European utilities to commit to longer-term contracts given targets among decarbonisation.”
A 2022 McKinsey survey found Chinese buyers were more confident about the longer-term need for LNG than Europeans who were more uncertain about their requirements after 2025 due to the energy transition and high prices leading to lower demand.
Qatar’s North Field East project began in 2020 with a goal to increase the Gulf state’s LNG export capacity from 77mn tonnes to 110mn tonnes by 2026, putting it in a position to overtake Australia. Shareholders in North Field East, controlled by QatarEnergy, include Shell, ExxonMobil, TotalEnergies, Eni and ConocoPhillips.
Half of North Field East production is expected to go to Europe, and the other half to Asia.
Another phase, North Field South, is slated to boost Qatar’s domestic LNG production to 126mn tonnes by 2027.
Qatar was the world’s second-largest exporter of LNG in 2021, accounting for 20 per cent of global exports, according to BP. However, the US has become the top LNG exporter this year.
“It is a significant LNG deal. It’s one of the largest ever signed,” said Daniel Toleman, Wood Mackenzie’s principal LNG analyst, of Monday’s agreement.