QatarEnergy has signed the longest such agreement to date to supply China’s Sinopec with liquefied natural gas (LNG). Buyers are looking for long-term supplies because of volatility.

Since Russia invaded Ukraine in February, there has been a lot of competition for LNG. Europe, in particular, needs a lot of it to help replace Russian pipeline gas, which used to make up almost 40% of the gas imported to the continent.

QatarEnergy chief Saad al-Kaabi told shortly before signing the Sinopec deal that European companies looking to purchase LNG needed to look at how Asian buyers were approaching their own negotiations and were willing to lock into long-term deals.

“Today is an important milestone for the first sales and purchase agreement (SPA) for North Field East project, it is 4 million tonnes for 27 years to Sinopec of China,” al-Kaabi said.

“It signifies long-term deals are here and important for both seller and buyer,” he said in an interview in Doha, adding that the deal was the LNG sector’s largest single sales and purchase agreement on record.

Qatar and Iran share the largest gas field in the world, which they collectively refer to as the South Pars. This includes the North Field.

In the first and largest phase of the two-phase North Field expansion plan, QatarEnergy signed five deals for North Field East (NFE), which includes six LNG trains and will increase Qatar’s liquefaction capacity to 126 million tonnes per year by 2027 from 77 million.

For the second phase of the expansion, North Field South (NFS), it later signed contracts with three partners.

The first supply deal for NFE to be announced was Monday’s deal, which was confirmed by Sinopec.

“This takes our relationship to new heights as we have an SPA that will last into the 2050s,” al-Kaabi said.

“It sends a message that a lot of Asian buyers are actually approaching us to have a long-term deal because they see the volumes of gas that are coming in the future are less and less.”

Long-term supply

According to long-term supply al-Kaabi, negotiations with additional European and Chinese buyers seeking supply security are ongoing.

As Europe searches for alternatives to Russian flows, Qatar’s North Field expansion project will strengthen its position as the world’s leading LNG exporter and help ensure long-term gas supplies to the continent.

“The recent volatility has driven buyers to understand the importance of having long-term supply that is fixed and that’s reasonably priced for the long term,” al-Kaabi said.

“There aren’t many projects that are taking final investment decision and the next two big chunks of LNG capacity that are coming into the market is Golden Pass LNG that we partnered with ExxonMobil in Texas and the next big chunk if you will is North Field East and North Field South.”

Al-Kaabi also stated that global awareness of the significance of gas in any energy transition was growing.

“The wind doesn’t blow all the time and the sun doesn’t shine all the time,” he said, adding that Qatari LNG is “a solution that has the least carbon intensity”.

The Sinopec deal’s pricing will be comparable to those of previous ones that were linked to crude oil.

“The way we’re pricing our deals with Asia is crude linked. We’ve done it this way in the past and that’s the mechanism we’re using going forward.”

Since the agreement was signed “ex-ship,” QatarEnergy will transport and deliver the LNG.

Al-Kaabi said that several organizations were still in the process of negotiating for an equity stake in the Gulf nation’s expansion project.

Sinopec stated in a statement that the supply contract is an essential component for an integrated partnership in the NFE, indicating that it may participate in stake negotiations.

Al-Kaabi stated that QatarEnergy could offer some buyers up to 5% of its holding in the expansion, despite maintaining a 75% overall stake.

“Important buyers that want to commit for the long term on a substantial volume want to see part of the benefits of the upstream business … so I think it’s an important win if you will and it makes the partnership even more solid.”