FEATURE: Qatar sees slow start to sale of new LNG supply

Qatar has a lot of catching up to do to sell all of its 48 million mt/year of new LNG production capacity that it's currently building as buyers look for more flexible contract terms, according to analysts.

Qatar's energy minister Saad al-Kaabi said in May that Qatar expects to lock in all long-term LNG contracts from the two phases of the North Field expansion by the end of this year. But only 11.8 million mt/year of those contracts have been signed, according to S&P Global Commodity Insights.

"There is a substantial amount left to do," said Mehrun Etebari, S&P Global Commodity Insights' associate director for global LNG. "QatarEnergy has expressed confidence that a wave of contracts will come as we move out of the summer months, but it remains to be seen.

"If negotiations remain ongoing, Qatar may have to offer more lenient terms than its desired 25-plus-year, destination-fixed contracts given competition not only from US projects but also, to a lesser extent, existing projects with expiring contracts in Oman and Abu Dhabi."

QatarEnergy did not respond to a request for comment.

Several European countries -- including the Czech Republic, Germany and the UK – were courting Qatar last year in a bid to lock in future LNG supplies following Russia's invasion of Ukraine and subsequent supply cuts.

However, among them, only Germany has a deal, with QatarEnergy agreeing in November to a long-term supply deal with ConocoPhillips for up to 2 million mt/year of LNG.

China National Petroleum Corp., China's Sinopec and Bangladesh's Petrobangla have also signed contracts.

"Qatar's model of relatively strict contract terms has served it well historically, as it has been a prized as a supplier for its reliability and ability to deliver in nearly any market conditions," Etebari said.

"But given the more flexible terms offered by other projects, led by US LNG plants, at present, it may be motivated to adjust, like it already has in offering 15-year terms for its ConocoPhillips and Petrobangla deals, shorter than usual for a new Qatari project."

Platts, part of S&P Global, assessed the benchmark JKM spot LNG price for delivery to Northeast Asia at a record $84.76/MMBtu on March 7, 2022. The JKM was assessed on Aug. 28 at $12.68/MMBtu. Delivered European LNG prices hit a record high of almost $75/MMBtu in August last year. Platts assessed the DES Northwest Europe LNG marker at $11.50/MMBtu on Aug. 25.

Buyers prefer shorter, FOB contracts

European buyers are hesitant to contract with QatarEnergy because Qatari volumes are generally offered with Brent indexation, said Siamak Adibi, principal consultant and head of the Middle East gas team for Facts Global Energy in Singapore.

They can accept risk exposure to Henry Hub prices but not to Brent, he said. "They prefer shorter and FOB contracts to have a flexibility for cargo diversion."

Qatar's desire for ex-ship LNG deliveries with a destination clause is also a deal breaker for some Japanese buyers, he said. QatarEnergy may "seem to be slow in long term LNG marketing, but we need to note that Qatar does not need to follow traditional LNG marketing strategy. They are quite different compared to the projects run by independent players in the US, for instance."

He added that Qatar has been actively seeking regasification capacity in Europe, with approximately 27 million mt/year of LNG import capacity at various European terminals contracted out to Qatar through long-term agreements. "This capacity booking aligns with Qatar's overarching long-term LNG sales strategy."

Market observers have said the global gas market is likely to remain relatively tight until new capacity additions in Qatar and the US come online later this decade.

Another reason why European buyers may be reluctant to contract with QatarEnergy is that they don't want to end up with excess volumes as countries seek to lower their gas usage to meet climate goals, Etebari said.

"Free-on-board contracts offered by many US projects tend to allow the buyers to resell these volumes, lowering this risk, whereas Qatar typically prefers destination restrictions," he said.

The LNG market remains somewhat balanced this year due to a "sluggish demand response in Asian markets" along with "strong European storage levels emerging from a mild winter," Etebari added. "But with very limited new liquefaction capacity coming online in the next two years, the market remains tight and potentially volatile in the near term.

"This tightness has spurred the ongoing massive wave of investment in new liquefaction projects since the invasion of Ukraine, led by the US and likely to include the North Field South phase in Qatar, which will likely outpace global demand growth as the projects come online and lead to a loose market late in the decade," he added.