The Winner Takes It All: China Secures LNG Mega Deal With Qatar Amid Europe’s Gas Crunch

Europe imports about five percent of its natural gas supplies from the Gulf sheikhdom, with nearly two thirds of the region’s supplies, or 65 percent, coming from Russia, Norway, and Algeria, who make up 41 percent, 16 percent, and 8 percent of imports, respectively.

The China National Offshore Oil Corporation (CNOOC) has secured a 15-year, 52.5 million metric tonne liquefied natural gas (LNG) supply contract with Doha.

The agreement, announced at a virtual signing ceremony on Wednesday, will see the delivery of 3.5 million tonnes per year (t/y) of LNG starting in 2022, bringing total Chinese-Qatari trade in natural gas to 15.5 million t/y.

“We are pleased to further build upon our strong relationship with the China National Offshore Oil Corporation with the signing of this new long-term LNG supply agreement,” Qatari Energy Minister Saad Sherida al-Kaabi said at the ceremony.

Qatar Petroleum signs 15-year SPA to supply 3.5 MTPA of LNG to China’s CNOOC#QP #QatarPetroleum #Qatarhttps://t.co/I14PivYOb4 pic.twitter.com/rBFg6I07TB

— Qatar Petroleum (@qatarpetroleum) September 29, 2021

“We are especially proud to continue to meet the People’s Republic of China’s growing need for cleaner energy that LNG provides, and are thankful to the China National Offshore Oil Corporation for partnering with us as their trusted LNG supplier,” the minister added.

Qatar is one of the largest natural gas producers in the world, regularly ranking fifth or sixth in annual global rankings. The vast majority of the sheikhdom’s exports are accounted for by the Asian market, including Japan, China, South Korea, Taiwan, Singapore, and India, with just a fraction of its estimated annual output of 77 million t/y delivered to other markets, including Europe.

This spring, CNOOC signalled interest in Qatar’s North Field LNG expansion – a massive gas production project expected to go online in the mid-2020s and produce at least 36 million tonnes in additional new gas each year. Doha hopes to expand its total gas production to as much as 126 million t/y by the year 2027. Qatar shares North Field – the world’s biggest known gas deposit – with Iran in the Persian Gulf.

Europe’s Gas Shortage Sparks Global Buy-up

The China-Qatar gas deal comes as gas prices in Europe continue to set new records, sparking concerns from consumers, industries, and governments alike. The unusually cold winter and spring of 2020-2021, a drop in energy output from renewable sources such as wind and solar, and other factors have left Europe’s strategic natural gas reserves more depleted than expected at the start of the new heating season, causing shortages and a dramatic jump in prices. On Wednesday, ICE Futures trading data saw gas future contracts soaring to new all-time highs of over $1,050 per 1,000 cubic metres, with prices having jumped a whopping 250 percent since the beginning of the year.

The shortages, and panic buying in other regions they’ve resulted in, have sparked a bidding war between the European and Asian gas markets, with Asian buyers managing to outbid the Europeans on most supplies coming from the US and other major producers.

Russia, which reliably provides over forty percent of Europe’s gas, would have been able to ship up to 55 billion cubic meters of gas more to the region via the Nord Stream 2 project this season if the US had not spent the previous two years trying to sabotage the joint Russian-European initiative. Nord Stream 2’s dual string pipeline is ready, but is now awaiting approval from German and European regulators.

Gazprom and Russian officials recently reiterated their readiness to fulfil all supply obligations and take on new commitments if necessary, even taking into account Asian, and particularly Chinese, demand. Earlier this month, Gazprom CEO Alexei Miller characterised China’s projected gas consumption of 360 billion cubic meters per year, and plans to increase imports from 160 billion cubic meters now to 300 billion cubic meters per year by 2023, “staggering.”

“Of course, the European market is connected to the Asian one. The situation with underground storages in the European Union last winter gives us plenty of food for thought,” Miller added, referring to the 66 billion cubic meter drop in gas inventories of EU nations observed last winter.

The United States has recently sought to blame Russia for Europe’s gas crisis, with a State Department official claiming last week that its gas sales to the region have been “inexplicably low compared to both previous years and what they have the capacity to do,” including via its deliveries through Ukraine, a US client state. The data debunk Washington’s allegations, however, with Gazprom sticking to the terms of its transit deal with Kiev to ship some 40 billion cubic metres of gas to Europe annually via Ukraine’s Druzhba pipeline network.