Qatar and China agree to a second major LNG supply contract.

Qatar and China agree to a second major LNG supply contract.

Qatar and China agree to a second major LNG supply contract. In a hint that the energy-hungry Asia power is racing to secure long-term agreements with one of the world’s leading exporters of liquefied natural gas, Qatar has negotiated a second major gas supply deal with a Chinese state-controlled corporation in less than a year.

Tuesday saw the signing of a 27-year agreement between the China National Petroleum Corporation and QatarEnergy, under which China will purchase 4 million tonnes of LNG annually from the Gulf state. The North Field in Qatar is the largest natural gas reservoir in the world, and as part of the expansion project, CNPC will take a 5% equity position in one of the LNG trains.

Read more: Crude Oil Futures Rise 3% on Solid Chinese Refinery Data and Weak US Dollar.

Only seven months have passed since a similar 27-year pact, this one between China’s Sinopec and QatarEnergy, which the Gulf state called “the longest gas supply agreement in the history of the LNG industry,” was completed.

As QatarEnergy moves forth with the $30 billion expansion of its North Field, increasing domestic LNG production capacity from 77 million tonnes per year to 110 million by 2025 and to 126 million tonnes two years later, it has been courted by governments and energy firms across Europe and Asia.

According to the Financial Times, Qatar’s energy minister Saad al-Kaabi said that he hoped to finalise long-term supply agreements with “several European countries” before the end of the year.

He said that agreements with the United Kingdom, France, and Italy were within striking distance.

“We have been, and continue to be, in discussions with different companies to supply gas into the UK and we expect that before the end of the year, we could probably have a deal done,” said Kaabi, who is also the chief executive of QatarEnergy. To paraphrase, “We are going to have several European deals before the end of the year — for sure, 100 percent.”

He noted that the UK and Qatar have been in discussions for longer-term LNG supplies from the Gulf state for roughly two years, but said there were still some “commercial issues” to resolve.

QatarEnergy owns a sizable stake in the South Hook LNG plant in Wales, which can meet about 20% of demand for gas in the United Kingdom. It also bought 25 years of storage and redelivery rights from the UK’s Grain LNG terminal in Kent in 2020.QatarEnergy has become a focus point for European countries seeking to wean themselves off Russian gas since it is one of the few energy companies that has been investing aggressively in additional gas capacity in recent years.

For the first time since the energy crisis that began after Russia’s invasion of Ukraine last year, natural gas prices in Europe returned to their regular trading range in May.

Though storage levels are at historic highs for the time of year, prices jumped dramatically again in June, highlighting how the market remains on edge regarding gas supply.

European governments courted Qatar in the early stages of the energy crisis, but they have been sluggish to sign contracts, especially the extremely long-term arrangements that Qatar is eager to secure for its own financial future. Since Russia’s full-scale invasion of Ukraine, only Germany has signed a big long-term pact with Qatar, with analysts citing concerns about striking a balance between short-term energy security and obligations to cut emissions.

Kaabi expressed a desire for a more balanced distribution of Qatar’s LNG between eastern and western markets in the future, despite the fact that the vast majority of the country’s LNG exports currently go to Asia.

While he welcomed the decline in prices from their 2021 highs, he did caution that a return to those levels was possible if global economies improved in 2022 and winter weather was typical.

I doubt the increase will be as substantial as what happened in Ukraine; that was an unusual circumstance. However, Kaabi predicted that prices would rise.

Kaabi cautioned that even if economic development in Europe picked up, the continent’s gas storage sites, which are currently over 70% full, would still be insufficient.

“You don’t have much volume coming in to fill it even further,” he warned. If you don’t replenish it in the summer, you’ll suffer the consequences in the winters that follow.

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