China Seals One of the Biggest LNG Deals Ever with Qatar

Picture Source: Internet

China has signed a landmark $60 billion deal to buy liquefied natural gas from Qatar as the world’s second-largest economy looks to bolster its energy security in the coming decades.

Qatar Energy will send 4 million tonnes of LNG a year to Sinopec starting in 2026, the state-controlled company announced in a virtual ceremony on Monday. The deal will last 27 years, making it China’s longest LNG supply deal to date, according to BNEF. It is also one of the largest in the country in terms of volume.

Countries worldwide are scrambling to secure power plants and heating fuel from major exporters such as Qatar and the United States, driving up prices. The global LNG market is almost at capacity on the supply side, with no new production coming online until 2026.

Europe is trying to replace Russia’s pipeline gas with liquefied natural gas, but talks with Qatar have stalled amid reluctance by countries such as Germany to sign long-term contracts. Many EU governments want to phase out fossil fuels and see the LNG deal as detrimental to their climate goals.

Although China’s LNG imports have fallen sharply this year due to the government’s strict zero-epidemic policy, demand is expected to rebound as early as 2023 and continue to grow over the next decade. China was the world’s largest LNG importer last year, and its state-owned buyers have been busy securing supply contracts with producers.

Sinopec’s gas will come from the North Field East expansion project, costing Qatar and investors, including Shell and Exxon Mobil, nearly $30 billion. This is the first supply agreement for the project, which aims to increase Qatar LNG’s annual production capacity from 77 million tonnes to 110 million tonnes within three years.

Saad Kaabi, Qatar’s energy minister and head of quantitative easing, signed the agreement with Ma Yongsheng, chairman of Sinopec. The deal is worth about $61 billion at current long-term contract prices, according to Bloomberg calculations.

Al Kaabi said this would “further strengthen” the good bilateral relationship between China and Qatar and “help meet China’s growing energy needs”.

Qatar is investing around $15 billion in its Beitian South expansion project. This will increase the country’s capacity to 126 million tonnes per year and is scheduled to be completed by 2027.

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