[Skybird]

Deutsche Welle (German edition)
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Asians compete with Europe for liquefied natural gas from Qatar

China does not mind long-term supply contracts for the import of climate-damaging natural gas. That's why it made a move on Qatar, which prefers just such contracts.

In the search for secure energy supplies in uncertain times, liquefied natural gas (LNG) is becoming increasingly interesting for many buyers. Especially for European consumers, who are painfully aware of their dependence on pipelines from Russia and want to become independent of it. But China is also betting on LNG: State-owned Qatar Energy announced the signing of a long-term gas supply contract with China. The emirate will supply four million tons of liquefied natural gas annually to the People's Republic. The contract runs for 27 years and is based on a so-called "ex-ship basis." This means that Qatar Energy will handle the shipping and delivery of the liquefied gas.

In addition, the Chinese group Sinopec is to take a share in the southern part of the North Field natural gas deposit. Western energy companies Shell, TotalEnergies and ConocoPhillips so far hold a 25 percent share in it.

Germany wants to end its dependence on Russia by importing LNG, among other things, and is expanding its LNG infrastructure at a rapid pace. Qatar is being discussed as a major supplier to export LNG. German Economics Minister Robert Habeck had already traveled to Qatar in March and agreed on an "energy partnership" with the emirate. However, a concrete agreement on the supply of LNG has not yet been reached. German Chancellor Olaf Scholz now said in an interview with Focus magazine that German companies are in Qatar "in very concrete talks, which I could tell you more about than I will." That the planned LNG deal had not worked out "is not so true," Scholz said, according to dpa.

China, in any case, got its way. In the deal with Qatar, Beijing followed a simple principle, said Johann Fuhrmann, head of the Beijing office of the Konrad Adenauer Foundation. "China does what benefits China, and if it hurts the Europeans, it accepts that."

In fact, the deal is very attractive from Beijing's perspective, Fuhrmann said. Until now, China has imported most of its liquefied natural gas from the United States and Australia, he said. "Now you can diversify these imports." This also makes the country less dependent on imports from Russia, he said. All of this, he said, is also happening against the backdrop of last summer's major drought, during which there were enormous power outages. "That's another reason why Beijing is naturally focusing on getting energy from other sources."

For Qatar, the contract terms would have played a role first and foremost, Fuhrmann says. He points out that Germany had only wanted to sign a contract for a maximum of five years. "The Qataris probably didn't see that as a worthwhile deal. After all, they have to expand the tanker fleet and gas production, as well as invest further in liquefaction technology. That would cost Qatar around $45 billion. That's why they prefer to rely on long-term partnerships."

And it is precisely these that Germany and other European countries do not want to enter into, says energy expert Heiko Lohmann, editor-in-chief of the trade magazine "energate Gasmarkt." It is true that Qatar will significantly expand production from 2026 onward. However, exports would mainly go to Asia. "The fundamental problem is that in Europe, unlike in China, people don't want to buy gas over a 27-year period. Because most politicians are absolutely correct ["Absolutely correct? They'll be surprised."; Skybird] in assuming that gas has no future over such a long period."

But Lohmann adds something else: Qatar wants to give its buyers as little flexibility as possible. "That creates an additional problem. Because if the Europeans sign a contract for 20 years, but only use gas for 15 years, they would like to sell the rest elsewhere if possible. But if the terms of the contract make that difficult, then of course it's even more difficult for buyers to enter into such contracts."

Indeed, the market for LNG is likely to be tight in the future. The Japanese Ministry of Trade, for example, warned recently that global competition for liquefied natural gas will intensify over the next three years. The main reason for this is that too little is being invested in supply. Long-term LNG contracts starting before 2026 are already sold out, according to the Commerce Department.

For importers, this means that they have to rely more on the so-called spot market, where the price is determined via trading platforms and is therefore correspondingly volatile. On the spot market, LNG is currently traded at almost three times the price of long-term contracts. According to the International Group of LNG Importers, around 30 percent of all LNG deliveries were made on the spot market last year.

According to financial services group SP GLOBAL, Europe (including the UK and Turkey) imported nearly 95 million tons of LNG during the first three quarters of the current year. This represented just under a third of global LNG imports, compared with just under a fifth in the same period last year. At the same time, Europe's share of spot trading also increased. Europe has a one-third share in this trade. In the previous year, this share was just under 13 percent.

At present, however, the supply situation in Europe is stable, says Heiko Lohmann. This is because the storage facilities are very full and, in addition, it is very warm for the time of year and consumption has fallen significantly, the supply situation is quite good, he says. "If it doesn't get very cold in the winter and the LNG supply doesn't decrease significantly because Asian companies increase their purchases significantly and Europe doesn't want to keep up with that, the supply should work reasonably in the coming winter." The fact that the situation is comparatively relaxed, however, does not mean that the price situation is as well. This can be extremely burdensome for consumers.
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