China’s $3 Billion Qatar LNG Deal Raises an Awkward Question

Qatar’s highly sensitive geographical positioning -- between a western land border with Saudi Arabia and a northeastern maritime border with Iran -- has necessitated it treading a delicate diplomatic path between regional superpowers and their global superpower backers since it gained independence from being a British protectorate in 1971. For much of the period from the 1945 landmark relationship foundation deal between Riyadh and Washington was signed, as fully analysed in my latest book on the new global oil market order, Sunni Muslim powerhouse Saudi Arabia was geopolitically aligned with Washington and its allies. On the other hand, since the Islamic Revolution of 1979, Shia Muslim powerhouse Iran has been geopolitically aligned with Beijing and Moscow. Qatar also shares the world’s largest gas reservoir with Iran -- the South Pars/North Dome field containing 51 trillion cubic metres of gas. Depending on whether one was sitting in Washington or Beijing in recent years, where Qatar fitted into the global geopolitical matrix was open to debate, while the emirate itself would simply have pointed to it taking a pragmatic approach.In the run-up to Russia’s invasion of Ukraine on 24 February 2022, this approach saw it act as a vast LNG supply depot for China, which over the 12 months before the invasion had suddenly been seized by an overriding desire to stock up on what would become the world’s emergency energy source. There followed a burst of long-dated LNG supply agreements made between Chinese buyers and Qatar, with the first landing in March 2021, when Sinopec and Qatar Petroleum agreed a decade-long deal for 2 million metric tons per year (mtpy) of LNG. Another followed that December, this time between QatarEnergy and Guangdong Energy Group Natural Gas Co., covering 1 million mtpy from 2024 through 2034, with scope for extension. Several similarly weighty contracts were signed in quick succession. After the Ukraine invasion, though, Qatari LNG supplies to Europe played a critical role in ensuring that the 28 European Union (EU) member countries took a decisive stand in punishing Russia for its action. In U.S., UK, and French circles, the EU’s previous reluctance -- led by Germany -- to meaningfully cut its dependence on cheap Russian hydrocarbons after the 2014 annexation of Crimea had long been viewed as a key factor in Putin’s calculation that a full-scale assault on Ukraine in 2022 would again carry limited consequences. Instead, by late March 2022, a series of high-level meetings between Qatari and senior Western officials had secured pledges for emergency LNG volumes from Qatar to the European countries that most needed them. After one such meeting -- involving Qatar’s Emir Sheikh Tamim bin Hamad Al Thani, German economy minister Robert Habeck, and U.S. representation -- then?President Joe Biden publicly designated Qatar a ‘Major Non-NATO Ally’. Two months later, Qatar and Germany signed a declaration of intent on energy cooperation, laying the groundwork for Doha to become a core LNG supplier to Berlin. The momentum continued into December 2022, when QatarEnergy and ConocoPhillips finalised two long-term sales and purchase agreements to deliver LNG to Germany for at least 15 years starting in 2026. Whether Iran, and its key superpower backer China, took this designation or the presence of the largest American military installation in the Middle East (Al Udeid Air Base) seriously is a matter of speculation. However, what is known is that Qatar was not excluded from Tehran’s wave of attacks on regional countries this year, which effectively meant that Beijing was fine with that happening too. Under the full terms of the all-encompassing ‘Iran-China 25-Year Comprehensive Cooperation Agreement’, first revealed anywhere in the world in my 3 September 2019 article and analysed in full in my latest book on the new global oil market order, China exercises huge control over all major elements of Iran’s foreign policy. This has been further enhanced by the fact that China remains the key financier of Iran through the enormous volumes of oil it continues to buy from the country. These volumes are always officially underestimated because, as also analysed in the book, any oil that does not officially go through China’s General Administration of Customs (GAC) is not entered into the country’s customs data and thus does not show up. In reality, many millions of barrels of Iranian oil have continued to be moved to the refineries where they are required or stored on land or at sea effectively as part of China’s Strategic Petroleum Reserve, with no official record of them. In short, if it suited Beijing, Iran would not have launched any of the attacks on its regional neighbours that it did, nor have allowed the Strait of Hormuz or the Bab al-Mandab Strait to close, nor have allowed the Iran-backed Houthi terrorist group to take up where Hamas and Hezbollah left off. The most serious of the attacks launched by Iran on Qatar this year in terms of its key energy infrastructure occurred in March, with long-term damage inflicted on its primary LNG facilities at Ras Laffan Industrial City. This knocked offline 17% of the emirate’s entire LNG export capacity. The strikes on the 18th and 19th of March damaged two major LNG processing ‘trains’ (production facilities) and struck Shell’s wholly owned Pearl GTL (gas-to-liquids) facility, which is fed directly by Qatar’s North Field. QatarEnergy’s CEO, Saad Sherida Al-Kaabi, confirmed that losing this 12.8 mtpy of capacity equates to roughly US$20 billion in lost annual revenue.At that point, Qatar said that the extensive technical damage to the LNG trains meant that full repairs were projected to take three to five years. Having said that, and only six months or so after the strikes, Qatar has made notable progress. Shell announced recently that it has successfully partially restarted the Pearl GTL plant, although for the moment it is focused on building limited inventory, while repairs on the damaged half of the plant will not be fully complete until Q1 2027. Nonetheless, to counter these massive infrastructure losses, QatarEnergy has aggressively accelerated its North Field East (NFE) expansion project. Overall, the NFE expansion programme will see six major new developments in the NFE and North Field South (NFS) by 2029. Four new trains -- each with 8 million mtpy – will be built on the NFE site, and two (with the same production capacity) on the NFS site, totalling 48 million mtpy of new LNG production. At the end of last February, QatarEnergy announced another set of projects -- focused on its North Field West (NFW) -- that would increase its LNG output from the then-current 77 million mtpy to 142 million mtpy before the end of this decade. This compares to the 404 million mtpy of LNG traded globally in 2023, and to industry estimates that this figure will reach around 625-685 million mtpy in 2040.Extraordinarily in this context, several reports emerged last week indicating that the first LNG train under the NFE expansion programme will be ready to start operation as early as next month. The process will begin with the introduction of feed gas, followed by a gradual progression over several weeks toward the first LNG production. This signals a significantly earlier start than the H1 2027 timeline mentioned by QatarEnergy’s al-Kaabi last month. The news followed reports of a US$3 billion loan secured by QatarEnergy from four Chinese banks last week -- a development verified exclusively to OilPrice.com by a senior source close to the EU’s energy security complex. This is the largest exclusively Chinese-underwritten corporate loan secured by a Qatari state entity to date. According to a detailed analysis by Bloomberg, the five-year syndicated debt facility is financed entirely by Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China, and China Construction Bank (Asia) at an exceptionally competitive 50 basis points over the US Secured Overnight Financing Rate (SOFR). Quite aside from the financial metrics, the deal appears to demonstrate China’s supreme confidence that Qatar’s facilities will not be targeted by Iran in the future. For those of a certain generation, it carries the distinct ring of an old-style protection racket: “Nice factory you've got there, shame if anything happened to it.” This would mark an interesting twist on Beijing’s standard Belt and Road Initiative (BRI) playbook. To wit: rather than extending loans for infrastructure improvements and then seizing geo-strategically vital waterways upon default, China may be using the threat and reality of Iran’s official and unofficial military forces to push loans for critical repairs to infrastructure damaged by Tehran to gain further influence in the victims of these attacks across the Middle East. It is a strategy clearly backed by huge capital commitment, as Bloomberg figures show Chinese bank lending to Gulf borrowers (excluding bilateral loans) surged more than fivefold last year to a record US$11.5 billion.By Simon Watkins for Oilprice.comMore Top Reads From Oilprice.comJapan to Compensate Oil Importers for High Shipping CostsPakistan Faces $1 Billion LNG Bill This WinterSuper El Niño Could Ease Asia’s LNG Supply Concerns