China's Sinopec acquires 1.25% share in Qatar's North Field East LNG expansion

China Petroleum & Chemical Corp., or Sinopec, signed a shareholding agreement with QatarEnergy in Doha on April 12 to acquire a 1.25% stake in the North Field East expansion project, the Chinese state-owned oil and gas giant said on its official social media account.

The 1.25% stake in the overall North Field East expansion project comes from a 5% interest in one of the LNG trains, each of which have a capacity of 8 million mt/year, according to a senior executive. ExxonMobil, TotalEnergies, ConocoPhillips, ENI and Shell were awarded stakes last year in the project to raise Qatar's LNG export capacity to 110 million mt/year by 2026 from 77 million mt/year currently.

The agreement was signed at a meeting between Sinopec's Chairman Ma Yongsheng and Saad al Kaabi, minister of state for energy affairs of Qatar and president and CEO of Qatar Energy, at the LNG exporter's headquarters, QatarEnergy said in a separate statement. Qatar is also planning the North Field South expansion, consisting of two trains with a combined capacity of 16 million mt/year. North Field East will add 32 million mt/year of capacity.

The equity stake follows the signing of a 27-year sales and purchase contract between Sinopec and QatarEnergy in November 2022, for 4 million mt/year of LNG to be supplied from the North Field East expansion project, both QatarEnergy and Sinopec said.

The 27-year LNG deal, which is one of the longest contract durations in the LNG industry, was signed at an oil-linked Brent slope of 12.7-12.8%, according to market sources.

Al-Kaabi said that China is one of the most important natural gas markets in the world, and it is also a key market for Qatar's energy products, according to the statement. It said Qatar and Sinopec are expected to expand their cooperation in LNG even further, and Qatar plans to give priority to developing long-term business with large customers like Sinopec.

"Sinopec has become the first Asian shareholder of the project, which will be another model of bilateral cooperation between China and Qatar," Sinopec said.

The deal is notable because Qatar and its main Asian customer Japan have not been active in renewing LNG contracts that have expired, and Qatar's share in Japan's LNG imports has been declining gradually.

On Japan's side, its utilities have been reluctant to commit to long-term LNG supply from Qatar on the same scale as the post-Fukushima years due to concerns about decarbonization and reopening of nuclear power plants. This has left China as the main Asian market for new LNG supply.

In 2022, one of the main changes in trade flows was a reshuffle in Qatar's customer base --- in 2021 its four largest buyers by volume were South Korea, India, China and Japan; in 2022 its top customers were China, India and South Korea, with Japan falling behind significantly and being replaced by European buyers. China emerged as the largest offtaker of Qatari LNG in 2022 with an increase of almost 70% and Qatar's exports to India also rose by around 10%.

QatarEnergy, previously known as Qatar Petroleum, in March 2021 also signed a 10-year LNG sale and purchase agreement with Sinopec for the supply of 2 million mt/year of LNG, with delivery starting from January 2022.

North Field is located on the maritime boarder between Qatar and Iran where it is called South Pars Field. It is the world's largest non-associated gas field, with estimated reserves of 1,810 Tcf.

The expansion coincides with global gas buyers looking for alternative supplies after Russia invaded Ukraine last year.

Platts, part of S&P Global Commodity Insights, assessed the European benchmark TTF month-ahead price at an all-time high of Eur319.98/MWh on Aug. 26.

Prices have weakened since on the back of healthy storage levels throughout most of Europe and demand curtailments, with Platts assessing the TTF month-ahead price on April 11 at Eur43.83/MWh.