QatarEnergy's uncontracted LNG volumes could spur more active spot, short-term trade

The LNG industry expects QatarEnergy's present uncontracted supply to be a sign of a more nuanced strategy toward dominating the market through shorter tenures and spot market volumes.

The LNG behemoth is planning a huge supply ramp-up from 2026 to the end of the decade, but the pace of new contract signings has been decelerating, and the market for long-term LNG contracts, even among growing Asian importers such as China, has been shrinking.

"We are expecting the spot market to become very liquid and given the extent of spot market volumes to be available, I expect the spot prices might go down to unexpected levels," a source familiar with long-term contracts said.

Competition

Market participants in Asia highlight the difference in the contracting between the Middle East exporters, QatarEnergy and Abu Dhabi National Oil Corporation Limited, where the latter has been able to sign 83% of its contracts in heads of agreement or sales and purchase agreements.

To the contrary, QatarEnergy's uncontracted volume means nearly 60% of the volume is contracted.

QatarEnergy did not respond to queries for a comment at the time of writing.

Market sources pointed out that ADNOC was amenable to allowing more flexibilities for buyers than QatarEnergy, as especially observed in contracts with European counterparts such as SEFE and ENBW, which allowed the buyers to receive cargoes in Europe as well as Asia.

Further, US LNG exporters have been able to find buyers willing to pay a premium for the fully flexible FOB supply. Granted, a large portion of US volume bought has been by portfolio companies and trading houses, but portfolio companies have been able to meet other flexibility or price requirements of importers.

Increasingly, large portfolio companies have been able to lower their offer prices for term contracts by asking the buyer to concede contractual flexibilities.

Meanwhile, buyers said, QatarEnergy has neither been willing to concede on contractual flexibilities toward sellers nor has the offer price been reduced to outcompete portfolio companies.

Market participants consider the possibility of US projects getting final investment decisions, large expansion in Qatar production and cost sensitive nature of growth markets of Southeast Asia and South Asia.

"This is no longer the market of early 2000s or the last decade. Now there are lot more sellers, the US exports was not a phenomenon earlier, but it is a major chunk of volume growth expansion. The attitude from them [QatarEnergy] does not reflect this," another source familiar with term contracts said.

Options

Another source familiar with long-term contracts said QatarEnergy could consider easing some flexibilities for buyers.

For instance, it could lower tenures from 27 years, which the company has been signing more recently. Another option could be to ease destination restrictions from one country to a region such as Northeast Asia, South and Southeast Asia.

However, in the absence of easing flexibilities to attract buyers and without lowering term contract offer prices so that existing contracts remain unaffected, the option mainly remains to either approach buyers of a lower profile than existing ones or to leave the volumes for spot trades and shorter tenures.

"Based on contracts announced through September 2024, QatarEnergy will have roughly 61 million mt/year in unsold capacity across its projects when we expect NFW [North Field West] to reach commercial start," S&P Global Commodity Insights said in its October report. This would reflect nearly 40% of the volume expected to be exported by QatarEnergy.

"Qatar may be facing headwinds in signing contracts with limited or no destination flexibility amid the risk of a much softer LNG market by the end of this decade and large-duration contracts, or it could be intentional to boost the company's trading portfolio," the report said.

Trading opportunities

The company presently produces 77 million mt/year, which is expected to ramp up to 152 million mt/year by 2030, including its expansion of North Field East, North Field West and North Field South expansions, and the volume offtake of 10 million mt/year from Golden Pass LNG in the US.

According to Commodity Insights data, in the year-to-date export of over 75 million mt by QatarEnergy in 2024, nearly 10%-11% was exported as part of the spot market.

Market participants said this portion of volumes sold in the spot market or short- and medium-term deals could rise.

In 2022, CEO Al Kaabi said QatarEnergy plans to become a leading LNG trader within 5-10 years.

One of the strategies, sources said, could be to allow QatarEnergy Trading, a 100% subsidiary of QatarEnergy, to take origination positions in the global market, which could then be backfilled at the "prevailing prices" later.

QatarEnergy Trading's most recent deal with GAIL can be seen as a sign of this strategy, sources said. QET offered the best levels for the Indian company's five-year Henry Hub-linked purchase tender. Readiness to participate in shorter-tenure purchase tenders with non-oil pricing is something that companies do not usually expect from QatarEnergy.

"It is also a fact that demand is easier to pick up in comparison to supply," a Middle East source said.

Another source said that QET will be the front of capturing the market at lower prices as QatarEnergy wouldn't want to undercut its existing term contracts in countries where it already has a presence through term contracts.

Either way, the breaking down of rigid contract-based market structures were key to developing gas-on-gas competition and the emergence of a liquid gas market in Europe, and QatarEnergy could have a similar impact on the LNG market.

"There could also be a bunch of aggressive quick term deals with all sorts of buyers at lowish prices," a Singapore-based source said, adding that the market is too dynamic for a simple answer.