Sinopec's 27-year LNG deal with QatarEnergy

The backstory: Liquefied natural gas (LNG) is a cleaner and more compact form of natural gas achieved by cooling it to super-low temperatures. This process reduces its volume and makes it a cleaner alternative with fewer greenhouse gas emissions. China, a major energy player, wants to secure long-term LNG contracts to secure a stable energy supply, especially after gas prices have soared since the Russia-Ukraine conflict. In 2021, China even signed contracts for 22.7 million metric tons of LNG, a 516% increase from the previous year.

Meanwhile, Qatar, the world’s top LNG exporter, plans to expand its LNG capacity through the North Field expansion project, which includes six LNG trains that will increase the nation’s production capacity from 77 million to 126 million metric tons by 2027. There are two phases for this expansion; the first is called North Field East and the second is North Field South. The project is expected to cost up to US$50 billion.

More recently: Last November, Chinese energy giant Sinopec signed a US$60 billion deal with QatarEnergy for a 27-year agreement to buy 4 million tons of LNG annually, which was the longest deal like this at the time. Previously, in 2021, the two had signed a 10-year supply and purchase agreement. Then, in April, Sinopec invested directly in Qatar's LNG sector. 

The development: Sinopec has officially signed another 27-year deal with QatarEnergy. This marks the third long-term supply agreement between the companies. The deal involves cooperation on the second phase of Qatar's North Field expansion project, with the aim of providing Sinopec with a steady supply of 3 million metric tons of LNG each year. As part of this partnership, QatarEnergy has agreed to transfer a 5% interest to Sinopec in a joint venture. This transfer gives Sinopec control over a significant annual LNG production capacity of 6 million tons in the North Field South project. 

Key comments: 

“Today we are signing two agreements that will further enhance our strong relations with one of the most important gas markets in the world and key market for Qatari energy products,” said Saad al-Kaabi, the Gulf state’s energy minister and CEO of QatarEnergy in June. 

“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,” said al-Kaabi to Reuters last November, referring to the Sinopec deal.

"Energy security has always been a priority for China," said Toby Copson, global head of trading and advisory at Trident LNG in Shanghai. "Having ample supply in their portfolio allows them to manage future volatility. I would expect to see more."

"Larger and more established buyers typically possess greater negotiation power compared to smaller or emerging players," said Rystad analyst Xi Nan. "Continuing to sign long-term contracts is a logical decision."