Oil & Gas

Sinopec snaps up first NFE LNG offtake deal with Qatar

Sinopec has signed up to buy 4 million tonnes per year of LNG from QatarEnergy (QE) for 27 years.

QE will supply the volumes from its North Field East (NFE) project, delivering the supplies to Sinopec’s terminals in China.

“This is the first long-term SPA from the NFE project to be announced, and marks the longest gas supply agreement in the history of the LNG industry,” said Minister of State for Energy Saad Sherida Al-Kaabi, who is also the president and CEO of QE.

QE intends to begin producing LNG from NFE in 2026. This deal would see QE supplying LNG to Sinopec to 2053.

“It’s a vote of confidence in gas demand running into the 2050s, both in terms of size and duration, said Welligence Energy head of Asia Marc Howson. “Long-term deals are back in vogue.”

The agreement would “further solidify” the bilateral relations between the two states, Al-Kaabi said.

“In addition, it opens a new and exciting chapter in our relationship with Sinopec, one that is very special and spans a number of different areas, and which we are excited about further growing and expanding into the 2050s.”

Constantly deepen co-operation

Sinopec chairman Ma Yongsheng also welcomed the deal as an “important part” of the co-operation between China and Qatar.

© Supplied by QatarEnergy
Picture shows; QatarEnergy signing a deal with Sinopec on LNG deliveries. Qatar. Supplied by QatarEnergy Date; 21/11/2022

“Qatar is the world’s largest LNG supplier, and China is the world’s largest LNG importer. The two countries share inherent complementarities and a good foundation for energy cooperation. The friendly and close ties between the two countries have created a good environment for us to constantly deepen co-operation,” Ma said.

The Chinese company sees QE as a “strategic, long-term and all-round partner, and we are expecting more co-operation fruits to come. Sinopec has been always committed to the development of green and clean energy.”

Sinopec is committed to development through “low-carbon, green, safe, responsible and sustainable development”. The deal for NFE volumes is in line with this, Ma said.

Al-Kaabi signed the deal in Doha, while Ma joined virtually from Beijing.

Fresh look

Sinopec signed up to take 2mn tpy of LNG for 10 years, in a deal struck in March 2021 with QE. The NFE deal is the second agreement between the companies.

“I have not seen any information on the pricing, but I suspect it is no longer at the sub 10% oil indexed levels being offered in the market around 2 years ago, but rather likely to be in the 12-14% range,” said GaffneyCline global gas and LNG director Ryan Pereira.

He went on to say the timing of the deal was key, coming as it did after COP27. “I think we can see people taking a fresher look at the merits of LNG/natural gas,” he said. Gas is “definitely a lot greener than the alternatives being utilised.  We need to remember that low carbon intensity gas (e.g. Tanzania as an example), has a role to displace fuels such as coal, giving a net benefit.”

Pereira went on to say LNG contracts would lengthen. “We will soon see more deals extending to 20-25 years, and hence more deals moving to supply into the 2040s and 2050s, which is not the rhetoric that you would have heard from many post COP26.”

New deals

QE has also launched the North Field South (NFS) project, which will come online in 2027. The Qatari company has signed up to build new LNG carriers, to carry its new supplies around the world.

“The Germans are looking at non-Russian supplies and negotiations have been back and forth between Qatar and Chancellor Olaf Scholz. European states have signed virtually no term deals, but they must be in the running for the next supply contracts from NFE,” Howson continued.

The European Union has continued to resist signing long-term deals, even while it seeks alternatives to Russian supplies.

According to GIIGNL data, average long- and medium-term contracts fell to 11.7 years in 2020, rising to 13.6 years in 2021.

Should Europe continue to resist long-term contracts, it will have to rely on the spot market for its LNG needs.

Chinese companies have demonstrated a willingness to secure future LNG supplies under extremely long-term deals. PetroChina struck a deal in July with US producer Cheniere Energy, starting in 2026 and running to 2050.

Updated at 12:51 pm with comments from Welligence’s Howson. 

Updated at 8:47 pm with comments from GaffneyCline’s Pereira. 

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