Qatar courts China for funding and LNG offtake from North Field expansion

Monday, 06 September 2021
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Qatar Petroleum is in talks with PetroChina and Sinopec for equity stakes in North Field East, the world’s largest single LNG project. PetroChina might take a 5 percent stake and CNOOC’s chief financial officer Xie Weizhi said the firm was “very interested” in firm LNG offtake.

Financial investment decision (FID) on the $28.75 billion North Field expansion was taken in February, with the project slated to add 33 million tons per annum (mtpa) to Qatar’s current 77 mtpa of LNG export capacity from the fourth quarter of 2025, a staggering 40 percent increase. Now Qatar Petroleum is looking for partners to help finance the giant project.

Apart from China’s three state-dominated oil and gas companies, Qatar has also approached Western majors including ExxonMobil, ConocoPhillips, Total, Chevron, Eni and Royal Dutch Shell.

Over $12 billion raised in bond market

The quest for funding from Western IOCs remains high although Qatar Petroleum on June 29 grabbed a staggering $12.5 billion in a jumbo bond sale. This large US dollar fixed-rate oil and gas bond was highly oversubscribed, having received order of more than $40 billion from global insurers, asset managers, pension funds and bank treasuries.

Equity finance is next. Western oil majors have been invited in a transparent tender to bid for a share for the North Field expansion, while talks with the Chinese NOCs are clouded in more secrecy.

ConocoPhillips, the third largest US oil company, confirmed it is preparing a bid for a stake while Italy’s state-dominated oil and gas company Eni is considering joining the competition. ExxonMobil, meanwhile, strives to extend and potentially enlarge its existing joint ventures in Qatar.

Shell to ship 1 mtpa of Qatari LNG to China

Eager to secure firm offtake of the North Field expansion, Qatar Petroleum just signed a 10-year contract with Shell to ship another 1 mtpa of LNG to China. Deliveries will start in January 2022, whereby the LNG cargoes will be shipped to various regasification and import terminals on the Chinese mainland. Once in full swing, the Shell deliveries will boost Qatari LNG supply to China to 12 mtpa.

Shell’s LNG deliveries to China will be sourced from the Qatargas 1 project. The 10 mtpa upstream and liquefaction facility is currently operated by Qatar Petroleum as a joint venture with ExxonMobil, Total as well as Marubeni and Mitsui. The JV will expire in January 2022 but ExxonMobil affiliates are keen to negotiate an extension. An Exxon spokesman said the US oil major was actively working with Qatar Petroleum to ensure “continuing success” in future LNG project in the Middle Eastern state. Exxon already has access to 15.4 million tons of Qatari gas through various JV deals, and getting a foothold on the North Field East project would give the US major secure access to comparatively cheap LNG for sale into high-priced markets in Asia.

Foreign equity funding used to be the main trigger for Qatar Petroleum to partner with Western oil and gas companies. But things have changed. "International partners, especially the majors, remain key to helping Qatargas secure LNG off-take and global market access," Valery Chow from Wood Mackenzie said, but “Qatar Petroleum does not necessarily need foreign balance sheet funding for new projects."

Qatar ready to bid in spot tenders

China will surpass Japan this year as the world’s largest LNG importer, according to ship-tracking data, and nearly two-thirds of Qatar’s LNG supplies are already going to Asian’s fastest growing economy. Catering to China’s gas market reform which creates dozens of new, small and risk-affine importers, Qatar’s state incumbent exporter has to reconsider its export strategy. Long-term contracts, often with a lack of destination flexibility, are no longer attractive as a growing portion of China’s LNG demand is being met by short-term or spot supplies.

China is keen on Qatari gas as it is offered at the lowest price at slopes of 10% Brent, and state-owned Chinese buyers are looking to diversify supply.

At least five Chinese companies, including Beijing Gas, ENN, Guangdong Energy but also state-run CNNOC, are understood to have purchased around 80-90 LNG cargoes in strip tenders for delivery up to March 2022. In addition, China’s Guangdong Energy in mid-August closed a tender for 13 cargoes for delivery between June, 2022 and December, 2023, traders said. To tap this growing short term market, Qatar needs to change tack.

Qatargas and Qatar Petroleum are recognizing their internal structures and plan to start their own gas trading desks. 

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