QatarEnergy agreed to buy U.S. liquefied natural gas from Cheniere Energy, although Qatar was one of the world's biggest exporters before the Iran war. The contract runs through 2054 and, according to one analyst, signals that Qatar sees a risk that Hormuz shipping freedom may never return.
QatarEnergy struck a deal Thursday with U.S. exporter Cheniere Energy to buy 4 million metric tons of liquefied natural gas (LNG) annually through 2054. Before the Iran war, Qatar was one of the biggest exporters of natural gas in the world. Now it is buying from its principal competitor, the United States.
The price is indexed to the U.S. Henry Hub price plus a fixed fee, and deliveries are expected to begin in the 2030s. The volume is less than 1% of global LNG trade of more than 400 million metric tons. Even so, Alex Munton of Rapidan Energy said it is about as big as you see in the U.S. for an individual deal.
Iran's attack on Ras Laffan cut Qatar's exports
Qatar was second only to the U.S. in LNG exports before the war, but shipments have collapsed in the eight months since Iran bombed its Ras Laffan production facility. The attack badly damaged two production lines, taking out about 17% of Qatar's LNG export capacity.
Qatar's Energy Minister Saad Sherida Al-Kaabi has said repairs will take about three years. Qatar has declared force majeure every month since the March attack. Al-Kaabi also said Qatar is exporting very little LNG right now because it can't export through the Hormuz Strait.
Analyst links the long contract to Hormuz risk
The length of the Cheniere contract indicates that Qatar sees a risk that freedom of navigation will never return to Hormuz as Iran keeps attacking tankers, Munton said. LNG offers few workarounds. As Munton put it: "There’s no other way of getting LNG to market."
QatarEnergy also secured a $3 billion loan earlier this month from Chinese banks, which could allow it to secure more U.S. LNG, UBS analyst Manav Gupta said in a note to clients. Separately, Venture Global is in advanced talks with QatarEnergy to supply 3 million metric tons annually, unnamed sources told Reuters, according to CNBC.
U.S. exporters gain on Wall Street
Shares of Cheniere and Venture Global have gained 26% and 40%, respectively, since the start of the war. UBS has a price target of $340 on Cheniere, implying 18% upside from Thursday's close.
Source: CNBC
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