Qatar LNG sales to key Asian markets confronted by US, UAE rivalry

Japan Petroleum Exploration Co

21/10/2024 11:28

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      Qatar facing increasing competition from US, UAE
    

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      Competitors offer flexible terms, cheaper prices
    

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      Talks with Japan, South Korea buyers stalled 
    

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      Destination clause, terms of contracts among key
disagreements
    

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      Japan long term LNG outlook remains uncertain
    

  
    By Andrew  Mills, Marwa Rashad, Emily Chow and Yuka Obayashi
       Oct 21 (Reuters) - Qatar is finding it hard to agree new
deals to supply liquefied natural gas (LNG) to Japan and South
Korea as rising competition from the U.S. and elsewhere with
more flexible contract terms challenges Doha's decades-old
dominance of the market.
     Qatar was once the top LNG supplier to Japan and South
Korea, but buyers are showing preference for supplies from the
United States, the United Arab Emirates and Oman. These
suppliers all offer shorter-term contracts and unlike Qatar do
not restrict the cargoes' final destination.
    This gives buyers flexibility to sell cargoes elsewhere in
the future if they no longer need the cargoes.
    Negotiations between Japanese and South Korean buyers and
Qatar have stalled over Qatar's insistence on destination
clauses, the sources said.
    "The Qataris try to achieve a lot in how they sell their
LNG, in terms of retaining control over the market, whereas
(others such as) the UAE's ADNOC and Oman are kind of happy to
just get a good price," a senior trading source said.  
    "ADNOC has taken advantage of the current situation, which
is that people want diversification of supply," the source
added.
    If state-owned QatarEnergy (QE) does not sign new agreements
with Japan and South Korea - the world's second and third
largest LNG importers after China - Qatar's role would be
further diminished. It was knocked off the top spot as global
LNG supplier by the United States in 2023.
    Qatar's major 4.92 million tons-per-year deal to supply
Korea Gas Corp (KOGAS) expires this year. Another 2.1 mtpa
supply deal expires in 2026, official data showed.
    QatarEnergy said it does not comment on market speculation.
    Japan's LNG demand is falling due to nuclear reactor
restarts, more renewable energy and a slowing economy. Imports
fell to 66 million metric tons in 2023, from 83 tons in 2018,
Japan customs data shows.
    Qatar's market share in Japan fell to 4% in 2023 from 12% in
2018. Meanwhile, the United States' share in Japan rose to 8%
from 3% during the same period.    
    Qatar's share of South Korea's market fell to 19% in 2023
from 32% in 2018, with Australia's share rising to 24% from 19%
and Malaysia's growing to 13% from 8% in the same period, data
from consultancy Energy Aspects showed.
       
    TOUGH TALKS
QatarEnergy is working to sign deals to supply European and
Asian buyers with fresh supplies of LNG expected to come
onstream from its North Field expansion, which will boost its
overall production by 85%. 
Chief Executive Saad Al-Kaabi said that he sees a bright future
for LNG for at least 50 years, especially in Asia. 
    Between 2022-2023, QatarEnergy agreed a series of 27-year
deals to supply Chinese buyers with new gas from North Field. 
 Taiwan and Kuwait have also signed up for more LNG since Qatar
announced the latest expansion. But little else has been sold.
Analysts estimate around 48% of total Qatar LNG from North Field
and its project in the United states has no contract.
    Meanwhile, ADNOC and Oman have struck long-term deals with
buyers from Japan, China and India.  
     
     
    Another sticking point for Japan is QatarEnergy's insistence
that buyers sign contracts for at least 1 million metric tons
per annum (mtpa) for 10-15 years, one of the sources said. 
Such terms are at odds with Japan's uncertain long-term LNG
outlook because of nuclear power station restarts and renewable
energy production, making it challenging for Japanese buyers to
commit to long-term LNG deals in case demand falls.
    Qatar has shown some flexibility in the negotiations,
offering smaller cargoes with flexible terms and a lower price
which, for contracts starting in 2028, is around 13% of the
price of a barrel of oil per million British thermal units
(mmBtu), the same source said.  
Japan's JERA did not renew a 5.5 mtpa supply agreement with
Qatar when it lapsed in 2021.
    "For buyers, being restricted with a destination clause can
be challenging, especially when demand decreases, forcing them
to find domestic buyers for excess supplies," a Japanese
government official said.
    "Compared to other gas-producing countries, this puts Qatar
at a competitive disadvantage."
    Tokyo Gas  9531.T , Japan's largest city gas provider, could
buy LNG from Qatar if the economics, contract flexibility and
timing are right, said senior general manager for LNG Yumiko
Yao. "Those factors will guide our future procurement
decisions," she said.
    In South Korea, Qatar's 4.92 mtpa supply deal with Korea Gas
Corp (KOGAS) expires this year. Another 2.1 mtpa supply deal
expires in 2026.
     
    DIGGING IN HEELS
    To provide stable revenues, Qatar prefers long-term
contracts of up to 27 years - the current lifespan of the North
Field expansion project and usually linked to the oil price.
    U.S. sellers, ADNOC and Oman generally offer LNG volumes on
a free-on-board (FOB) basis, which allows buyers to resell
cargoes. Deals are usually linked to U.S. natural gas prices at
the Henry Hub benchmark, which tend to be cheaper than contracts
linked to oil. 
    Competition between Qatar and the U.S. intensified following
Europe's decision to end dependence on Russian pipeline gas
following Moscow's invasion of Ukraine. U.S. exporters filled
most of the supply vacuum, surpassing Qatar to establish
themselves as the world's biggest LNG exporter in 2023.
    In the absence of many credit-worthy buyers signing large
and long-term contracts with Qatar's conditions, one option for
QatarEnergy could be to sell more supply in the spot market,
said Anne-Sophie Corbeau, researcher at Columbia University's
Center on Global Energy Policy.
    "Now, we have about 39% (of global supplies in) spot and
short term, but Qatar could move that to 60% if they were to
change. The question is: do they want to?" 

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Japan LNG imports over the past decade    https://reut.rs/3IpCMPu
Japan boosts reliance on allies Australia, US for long-term LNG
supplies     ID:nL5N3FD190 
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 (Reporting by Andrew Mills in Doha, Marwa Rashad in London,
Emily Chow in Singapore and Yuka Obayashi and Katya Golubkova in
Tokyo; Editing by Nina Chestney and Louise Heavens)
 ((mailto:marwa.rashad@thomsonreuters.com; +447823669044;
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