Qatar books key UK LNG supply deal as export push begins

Qatar Petroleum is set to ramp up exports of liquefied natural gas to the U.K. as the Persian Gulf country seeks buyers for the output from a new project and several large supply contracts are due to expire.

Qatar reserved capacity for as much as 7.2 million tons of LNG per year at the Isle of Grain terminal from 2025 to 2050, or about 11% more than it shipped to the U.K. in 2019. The deal will lock up about 40% of the London facility’s capacity after its owner, National Grid Plc, has expanded the terminal.

The deal bolsters the biggest LNG producer’s plan to increase its annual liquefaction capacity by 43% to 110 million tons in 2025, and will help its efforts to attract more long-term buyers needed to receive the extra volume.

As new final investment decisions for export projects tail off this year amid the global pandemic, Qatar’s plan to add four new production lines, or trains, may be given the go-ahead by the end of the year, energy consultant Wood Mackenzie Ltd. said before QP announced the capacity booking. Qatar intends to add more trains by 2027 to export as much as 126 million tons a year.

Reaching a final investment decision on the expansion will affect LNG producers around the world, Andrew Seck, a vice president at Total SA, which is leading a major LNG project in Mozambique, said at the Energy Intelligence Forum on Tuesday.

“They have the ability to take FID on multiple trains, and I think that will cause a significant challenge to many of the other competitors,” Seck said. “I see that as a really decisive moment when that decision happens, on understanding the supply-demand balance for the remainder of the decade.”

Qatar appears willing to offer LNG much more cheaply than in the past. QP signed a deal in September to sell the super-chilled fuel to China’s Sinopec at the lowest long-term contract price announced in recent years.

The Gulf nation can produce LNG more cheaply than almost anywhere in the world, making it easy to undercut its rivals on price. In addition to its new capacity, Qatar needs new contracts to replace the more than 20 million tons per year in long-term contracts due to expire by 2025, according to global importers group GIIGNL.

Qatar is even eyeing another round of expansion to follow after 2027.