In the search for a secure energy supply in uncertain times, liquefied natural gas (LNG) is becoming increasingly interesting for many customers. Especially for European consumers who are painfully aware of their dependency on the pipelines from Russia and want to break free from it.
But China is also banking on LNG: At the beginning of last week, Qatar’s state-owned company Qatar Energy announced that it had signed a long-term gas supply contract with China. The emirate will deliver four million tons of liquefied natural gas to the People’s Republic every year.
The contract runs for 27 years and is based on a so-called “ex-ship basis”. This means that Qatar Energy will ship and deliver the LNG.
In addition, the Chinese group Sinopec is to take over a share in the southern part of the North Field natural gas reservoir. The Western energy companies Shell, TotalEnergies and ConocoPhillips have so far held a 25 percent share.
Among other things, Germany wants to end its dependence on Russia by importing LNG and is expanding its LNG infrastructure at a rapid pace. As an important supplier, Qatar is under discussion as the main exporter of LNG. Federal Economics Minister Habeck traveled to Qatar in March and agreed an “energy partnership” with the emirate.
However, a concrete conclusion on the delivery of LNG has not yet been reached. Chancellor Olaf Scholz said now in FOCUS that German companies are “in very concrete talks in Qatar, about which I could tell you more than I will.” The fact that the planned LNG deal would not have worked is “not true,” said Scholz .
In any case, China has had a chance. In the deal with Qatar, Beijing is following a simple principle, says Johann Fuhrmann, head of the Konrad Adenauer Foundation’s Beijing office. “China does what China uses, and if it harms Europeans, then it accepts it.”
In fact, the deal is very attractive from Beijing’s point of view, according to Fuhrmann. So far, China has imported most of the liquefied gas from the United States and Australia. “Now you can diversify these imports.”
This also makes the country less dependent on imports from Russia. All of this is also happening against the background of the great drought last summer, during which there were huge power outages. “That’s another reason why people in Beijing naturally rely on obtaining energy from other sources.”
According to Fuhrmann, the contractual conditions played a primary role for Qatar. He points out that Germany only wanted to sign a contract for a maximum of five years. “The Qataris probably didn’t see that as a profitable business. After all, they have to expand the tanker fleet and gas production and continue to invest in liquefaction technology. That would cost Qatar around $45 billion. That’s why people prefer long-term partnerships.”
And that’s exactly what Germany and other European countries don’t want to do, says energy expert Heiko Lohmann, editor-in-chief of the trade magazine “energate Gasmarkt”. Qatar will expand production significantly from 2026 onwards.
However, exports would mainly go to Asia. “The fundamental problem is that, unlike in China, people in Europe do not want to buy gas over a 27-year period. Because most politicians are quite correct in assuming that gas has no future over such a long period of time.”
But there is something else, according to Lohmann: Qatar wants to give its customers as little flexibility as possible. “That creates an additional problem. Because if Europeans sign a contract for 20 years, but only use gas for 15 years, then they would like to sell the rest somewhere else if possible. But if the contract terms make that more difficult, then of course it is even more difficult for buyers to enter into such contracts.”
In fact, the market for LNG is likely to become tight in the future. The Japanese Ministry of Commerce has recently warned that global competition for liquefied natural gas will intensify over the next three years. This is mainly due to the fact that too little is invested in the offer. Long-term LNG contracts starting before 2026 are already sold out, according to the Commerce Department.
For the importers, this means that they have to rely more on the so-called spot market, on which the price is determined via trading platforms and which is therefore correspondingly volatile. LNG is currently being traded there almost three times as much as under long-term contracts. According to the International Group of LNG Importers, around 30 percent of all LNG deliveries were made via the spot market last year.
According to financial services group SP GLOBAL, Europe (including the UK and Turkey) imported nearly 95 million tons of LPG during the first three quarters of this year. This corresponded to almost a third of global LNG imports, compared to just under a fifth in the same period last year. At the same time, the European share of so-called spot trading also increased. Europe is involved with a third of this. In the previous year, this share was just under 13 percent.
The supply situation in Europe is currently stable, says Heiko Lohmann. This is due to the fact that the storage tanks are very full and it is also very warm for the time of year and consumption has dropped significantly, the supply is quite good.
“If it doesn’t get very cold in winter and the LNG supply doesn’t drop significantly because Asian companies are increasing their purchases significantly and Europe no longer wants to keep up, the supply should work reasonably well next winter.” does not mean, however, that the price situation is the same. This can be extremely stressful for consumers.
Author: Kersten Knipp
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The original of this article “Asians compete with Europe for liquid gas from Qatar” comes from Deutsche Welle.
