China Close To Signing 27-Year LNG Supply Deal With Qatar

China National Petroleum Corporation (CNPC) and QatarEnergy are expected to sign a 27-year agreement, which will allow China to purchase 4 million metric tons of liquefied natural gas (LNG) a yearReuters reported on Tuesday.

Sources familiar with the deal told Reuters that CNPC also will take an equity stake in the eastern expansion of Qatar’s North Field LNG project. The stake is the equivalent of 5 percent of one LNG train with a capacity of 8 million tonnes per year.

Despite selling equity shares in the North Field expansion to foreign firms, QatarEnergy plans to retain a 75 percent stake in the project, which will cost at least $30 billion, including the construction of liquefaction export facilities.

In April, China’s Sinopec signed a deal to become a “value-added” partner in Qatar’s North Field expansion project.

The project, with a total investment cost of $28.75 billion, aims to raise Qatar’s LNG export capacity from the current 77 million metric tonnes per annum (MTPA) to 110 MTPA, making it one of the largest LNG projects in the world, Sinopec said in a statement.

“The cooperation will help Sinopec optimize the energy consumption mix in China and secure a long-term and reliable clean energy supply to the nation. The partnership represents another model of bilateral cooperation between China and Qatar,” Sinopec said.

China is seeking increased imports of LNG from Qatar, the world’s top LNG supplier, in part to reduce dependence on LNG imports from the United States, the world’s second-largest supplier.

Some US lawmakers have touted Chinese reliance on US-produced LNG as an opportunity to exert influence over the nation with the world’s second-largest economy.

“If you want to think of it geopolitically, why wouldn’t we want China dependent on our natural gas for their own economy?” House Speaker Kevin McCarthy said in an interview reported by  Politico. “Would the world not be safer, and would we not be stronger? Why wouldn’t we create more American jobs at the same time?”

However, Senator Bill Cassidy of Louisiana explained that Chinese purchases of US-produced LNG are mutually beneficial, stating that “China gets guaranteed shipments at a certain price by providing upfront capital. That, in turn, helps U.S. companies build export terminals, which drives demand for more US drilling in places like Louisiana and Texas.”

“Right now, China is a frenemy,” he said. “If they – just like India, South Korea, Japan, the EU – are purchasing or buying, helping to pay for the capitalization of LNG export terminals, well, that’s a good thing.”

Competition for LNG has intensified since the start of the Ukraine war in February 2022. Europe needs new sources of natural gas to help replace the Russian pipeline gas that used to make up almost 40 percent of the continent’s imports. Europe cut off its own supply of Russian gas by imposing sanctions against Moscow after the start of the war.