China’s national oil companies are in advanced talks with Qatar to invest in the expansion of the world’s largest field, North Field East, and to purchase fuel under long-term contracts, three people familiar with the matter said.
This would be the first such partnership between the two countries, which are among the world’s largest consumers and producers of liquefied natural gas, as the Middle Eastern energy exporter seeks to expand its Asian customer base. Global energy corporations have been major investors in Qatar’s gas industry.
The Qatar supply deal will help China build a buffer against spot price volatility and diversify its imports; relations with two major suppliers, the United States and Australia, are at an extremely low point, and the other, Russia, is at war and facing widespread sanctions. Beijing sees gas as a strategic fuel that will replace coal on the path to carbon neutrality by 2060.
Qatar is the largest supplier of liquefied natural gas to China after Australia in the first five months of 2022, according to data from Refinitiv Eikon.
China’s share of liquefied natural gas imports from Qatar jumped to 24.9% in January-May 2022 from 11.7% in January-May 2022.
State-controlled CNPC and Sinopec are expected to invest a 5% share in two separate export trains, part of a nearly $ 30 billion project to expand the Nordic deposit, three sources familiar with the discussion told Reuters.
“Participation, even with a small share, will give the Chinese direct access to the highly globalized project and learn from its managerial and operational experience,” said one source, a senior Beijing-based industry official.
The expansion of the northern field includes six liquefied natural gas trains, which will increase Qatar’s liquefaction capacity from 77 million tonnes a year to 126 million tonnes a year by 2027, consolidating its status as the world’s largest producer.
Qatar treats each export train as a joint venture, and CNPC and Sinopec will invest in each train, sources said.
Sinopec declined to comment. A CNPC spokesman said he had no information to share, and QatarEnergy did not respond to a Reuters request for comment.
In addition, CNPC and Sinopec are in talks with state-owned QatarEnergy to buy up to 4m tonnes of liquefied natural gas a year for up to 27 years, two sources said, which would be the biggest deal to buy supercooled fuel between the two countries.
In 2021, China imported nearly 9 million tons of liquefied natural gas from Qatar, or 11% of the country’s total liquefied natural gas imports.
Discussions are focused on the pricing of long-term supply deals that will be tied to the global oil market, said another of the three sources.
On Sunday, QatarEnergy announced that TotalEnergies had become its first partner in the project, winning a 25% stake in a train. Asian buyers are expected to make up half of the project’s market and European buyers the rest, said QatarEnergy’s chief executive.
Exxon Mobil Corp., Shell, ConocoPhillips and Eni have also submitted bids for the project.
“China’s participation in the trains is more like a financial investor, as the share is very small. Negotiations on the prices of long-term gas supplies are key,” said the third source.
He added that Indian companies were also interested in discussing shares with Qatar, but did not give details.
China, the world’s largest buyer of liquefied natural gas in 2021, imports 45% of its natural gas needs and sees Qatar as a reliable long-term supplier after a series of purchase agreements with the United States in late 2021.