QatarEnergy agreed to buy 4 million metric tons of LNG a year from U.S. exporter Cheniere Energy through 2054. The deal follows Iran's attack on Ras Laffan and the near-halt of Qatari shipments through the Strait of Hormuz.
QatarEnergy, the company behind one of the world's biggest natural gas export businesses before the Iran war, struck a deal Thursday with Cheniere Energy to buy 4 million metric tons of liquefied natural gas annually through 2054. 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 the global LNG trade of more than 400 million metric tons. Even so, Alex Munton of Rapidan Energy said that as an individual deal, it is about as big as you see in the U.S.
Ras Laffan damage cuts Qatari exports
Before the war, Qatar was second only to the U.S. in LNG exports. Shipments have collapsed in the eight months since Iran bombed Ras Laffan, damaging two production lines and 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 also declared force majeure every month since the March attack. In September, Al-Kaabi said Qatar is exporting very little LNG because it cannot export through the Hormuz Strait.
Hormuz risk shapes the long contract
Munton said 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 added that it is harder to find ways around Hormuz for LNG because it is fundamentally a waterborne product. According to Munton: "There’s no other way of getting LNG to market. They’re just stuck."
UBS analyst Manav Gupta noted that QatarEnergy secured a $3 billion loan earlier this month from Chinese banks that could allow it to secure more U.S. LNG. Venture Global is also in advanced talks to supply 3 million metric tons annually, according to unnamed sources cited by Reuters.
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.
Nearly 90% of equity analysts covering Cheniere rate it a buy, with an average price target of $314.
Source: CNBC
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