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China acquires its first equity stake in Qatari LNG project

Sinopec, a Chinese government company, has acquired a stake in the liquefied natural gas (LNG) expansion project being undertaken by QatarEnergy (QE), a Qatari counterpart, at the supergiant North Field gas reserve—the first-ever Chinese equity interest in the Gulf state’s gas production. We expect relations between the two countries to grow in the coming years, supported by both partners’ long-term gas strategies.

Why does it matter?

The agreement, which entails Sinopec acquiring a 1.25% stake in the expansion project’s 32m‑tonne/year (t/y) first phase (known as North Field East, NFE), was novel but not unexpected. Relations between the two countries will deepen, consistent with Qatar’s broader foreign policy of balancing international alliances, in this case with its strategic US partnership. It had long been expected that QE would allocate stakes to key Asian buyers in addition to its traditional Western partners (five of which purchased a combined 25% of NFE last year), and especially those from the key Chinese market. The company has notably involved Chinese firms in the shipping and construction elements of the integrated development. Meanwhile, China’s purchases of Qatar’s existing output have soared despite the overall decline in demand caused by its now-lifted zero-covid policy; QE accounted for about a quarter (15.7m tonnes) of China’s LNG imports in 2022, a roughly 75% year-on-year increase, as supply deals signed with several Chinese buyers in 2021 came into effect. The Gulf state is an attractive alternative politically to China’s traditional main suppliers, Australia and the US, with which relations are tense, and QE is targeting the Asian superpower as demand from Japan, historically its main customer, declines and Japanese importers refuse the 20-years-plus contracts Qatar favours.

Foreshadowing the NFE acquisition, Sinopec signed an estimated US$60bn agreement with QE in November to buy 4m t/y of LNG for an unprecedented 27 years. Negotiations are reportedly nearing conclusion on a similarly sized deal with China National Petroleum Corporation, which is also likely to be accompanied by an equity stake. QE could sell-down another 3.75% in NFE and 5% in the 16m‑t/y second phase (North Field South) to leave it with the customary 70%. Combined, the two projects will raise production capacity by 64% to 126m t/y by 2027, restoring Qatar’s place as the world’s largest exporter for the foreseeable future.

What next?

QE is expected to sign another major supply agreement with a Chinese state-owned buyer, accompanied by an equity stake in the expansion project, by mid-year. During 2023‑27, China will become the single main buyer of LNG from Qatar, which will become China’s main supplier.

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