Qatargas has agreed to sell 5.5 million mt of LNG to Shell, amid uncertain demand from its Asian long-term buyers and building diplomatic tensions with its trading partners in the Middle East.
Under the sales and purchase agreement, the state-owned producer will supply Shell with 1.1 million mt/year of LNG over five years from 2019, according to a statement released by Qatargas Sunday.
The LNG will be sourced from the Qatargas 4 project, a joint venture between Qatar Petroleum (70%) and Shell (30%), and delivered to the UK’s Dragon LNG terminal and the Netherlands’ Gate LNG terminal, where Shell has access.
“This deal provides Qatargas with access to Shell’s gas sales portfolio in the United Kingdom and continental Europe, as well as the flexibility to manage LNG deliveries to our global client portfolio,” Qatargas CEO Khalid Bin Khalifa Al-Thani said.
The agreement comes amid growing uncertainty over demand from Qatar’s long-term buyers in northeast Asia.
Close to one third of the LNG produced by Qatar, the world’s largest supplier of the fuel, is now sold under spot or short-term deals, as rising global supplies have forced the exporter to offer buyers more flexible terms.
And a big share of its existing contracts are due to expire by 2021, including 7 million mt contracted with Japanese utilities, which are seeking more control via shorter, more flexible agreements, amid growing competition from their newly deregulated downstream markets.
Qatargas has also seen its LNG strategy affected by the recent diplomatic crisis in the Middle East, with four countries having broken diplomatic ties with Qatar, including two of its LNG customers, over claims it funds extremism and terrorism.
Although the break in diplomatic ties has not been accompanied by a break in commercial relations, buyers may now attach a risk premium to Qatari LNG supplies, offering opportunities to other LNG producers, according to PIRA Energy, a unit of S&P Global Platts.
Qatar exported 78.8 million mt of LNG in 2016, more than 30% of a total global supply of 257.8 million mt, according to Platts Analytics, and an increasing share of its production is being delivered to emerging Middle Eastern buyers, including Egypt, Jordan and the UAE.