Qatar landed the “longest contract in the history of the LNG industry”: For 27 years, the emirate supplied China with a total of 108 million tons of liquid gas. Germany is in a difficult dilemma in the negotiations with Qatar.
Qatar and China have signed a long-term and comprehensive gas agreement. The state-owned company Qatar Energy will deliver four million tons of liquefied natural gas (LNG) to the People’s Republic every year, the group said. The contract runs for 27 years, making it the “longest” contract in the history of the LNG industry, according to Energy Minister and Qatar Energy boss Saad Sherida Al-Kaabi.
The gas is to come from the eastern North Field off the coast of the country and go to the Chinese company Sinopec. Sinopec said it would also take a stake in the southern North Field. The Western energy companies Shell, TotalEnergies and ConocoPhillips have so far held a 25 percent share.
Qatar Energy and Sinopec had already signed an initial gas supply agreement in March 2021, which will run for ten years. According to energy consultancy Enervis, Qatar is the world’s largest exporter of liquefied natural gas and aims to increase LNG production by 60 percent by 2027. Then the country wants to produce 126 million tons annually. The rich emirate has the third largest gas reserves in the world after Russia and Iran. Qatar shares the world’s largest gas field with Iran, located off the country’s coast.
The vast majority of exports go to Asia, so far primarily to Japan, South Korea and India. Since the start of the Russian war in Ukraine, Germany and other European countries have also been increasingly asking for LNG. However, they do not want to conclude such long-term contracts as China, because LNG is only intended to serve as a transitional energy source. Terms of 20 years are common on the market, as Sebastian Gulbis, partner at the energy consulting company Enervis, explains to ntv.de. Contracts with terms of more than ten years are dominant.
“From a German perspective, this collides directly with Germany’s ambitious decarbonization goals, which envisage a massive reduction in natural gas consumption over the next 20 years, with the goal of even zeroing within 20 years,” says Gulbis. “The conclusion of a larger contract with a term of more than ten years could therefore harbor the risk for Germany of having contracted too much gas.” Germany and Qatar signed an energy partnership in May. At that time, it was said that Qatar could deliver liquid gas to Germany as early as 2024. However, it is still unclear when a supply agreement can actually be concluded.
In Gulbis’ view, Qatar’s deal with China illustrates Germany’s risk “that in the current tense situation Qatar may find enough buyer countries that are willing to conclude contracts with such a long term – and for Germany ‘nothing is left’. This fact improve Qatar’s negotiating position enormously in the current talks. In the worst case, Germany would have to prepare to procure large quantities of LNG on the short-term spot market. That would mean risks for security of supply, because the quantities would then have to be available on the short-term market the short-term price fluctuations on the spot market, with extreme price premiums being possible.
“All in all, this means a strong medium-term reduction in natural gas consumption for Germany, for example through the massive installation of heat pumps or efficiency and renovation measures as well as the use of hydrogen,” summarizes Gulbis. It is ironic that falling consumption would further exacerbate the differences in the negotiations with Qatar. “This contradiction can ultimately hardly be resolved.”