China signs two big LNG deals with Qatar

China signed two multibillion, dollar long-term deals to buy liquefied natural gas from Qatar on Thursday, marking a milestone in Asia’s evolution as the hottest market for the fuel.

PetroChina struck a deal to buy 3m tonnes of LNG a year over 25 years from 2011 with Qatar and Royal Dutch Shell, its partner. Analysts said the deal could could be worth as much as $60bn (£30.4bn).

CNOOC, China’s primary LNG importer, also signed a framework supply agreement. Although it is yet too be formalised in a binding contract, it is for 2m tonnes a year from 2009.

The deals indicate that Beijing recognises it must pay global market prices to secure supplies of LNG. It has already intensified the demand pressures in the tight global LNG market and is expected to force other countries to pay higher prices.

“Three to four years ago, the Qatari projects were going to send this gas to the Atlantic Basin, particularly the US,” said Frank Harris, of Wood Mackenzie, the Edinburgh-based consulting firm. “What it means is that we are going to see a lot less LNG go to the US than we thought.”

Though terms were not disclosed and the ultimate price paid will depend on the oil price, Wood Mackenzie valued the deal at $60bn, assuming a $100 a barrel crude price.

The natural gas market has tightened amid booming demand in Asia and a sharp decline in supplies from Indonesia, which has so little gas left to export that it renewed deals for five years rather than the usual 25. Japan, South Korea and other Asian nations have been scrambling to secure gas. In Japan, nuclear outages have pushed the leading utility to double the amount of LNG it bought in the past 12 months.

The country recently paid a record price for a five-year supply deal with Indonesia in anticipation of the deals and China’s emergence as a leading competitor. China has been reluctant to make a full return to global LNG markets since signing its first long-term supply agreement with an Australian supplier in 2002, which locked in a low price over the 25-year contract.Sharply Higher prices and a tighter market have pushed the country’s companies back into the fray.

(Financial Times)