QatarEnergy locks in US LNG supply from Cheniere as Hormuz disruption drags on

By Curtis Williams and Arunima Kumar

Oct 22 (Reuters) - Qatar Energy on Thursday signed one of the largest LNG agreements in US history, buying 4 million metric tons per annum (mtpa) of liquefied natural gas from US producer Cheniere Energy LNG.N.

The agreement will see the world's largest LNG exporter, QatarEnergy, buy from the world's second-largest LNG exporter from the early 2030s through 2054, according to a statement. Two million metric tons per year will be sourced from Cheniere’s Sabine Pass facility in Louisiana, and another 2mpta will come from its Corpus Christi terminal in Texas,

The US-Israeli war on Iran and Tehran’s retaliation this year have sharply curtailed shipping through the Strait of Hormuz, the only route for Qatar’s LNG exports, which previously accounted for about 20% of global supply. The Cheniere deal gives QatarEnergy a hedge against that chokepoint, turning one of the world’s biggest LNG sellers into a major buyer of US gas, three analysts said.

"Qatar has to diversify their sources of supply...to cover any potential future situation where they have a problem sourcing LNG out of the Strait of Hormuz," said Ira Joseph, a senior research associate at Columbia University's Center on Global Energy Policy.

The deal will help QatarEnergy's customers to know the company will have supply flexibility because the Middle East is not as stable as was once thought, said Jason Feer, head of business intelligence at Poten and Partners. Qatar lacks viable workarounds available to oil-exporting neighbors through expanded pipeline networks beyond the Strait of Hormuz, said Alex Munton, director of global gas and LNG research ⁠at Rapidan Energy Group.

"A return to freedom of navigation in the strait is therefore in Doha’s overriding national interest, but if that can’t be achieved, then assembling a larger portfolio of international LNG supply may be the next best thing it can do," said Munton.

All three analysts expect QatarEnergy to also look to other parts of the world, including Africa, for opportunities to sign long-term LNG deals and expand its trading portfolio.

Under the agreement with Cheniere, QatarEneegy will buy LNG indexed to Henry Hub natural gas prices plus a fixed liquefaction fee. Of the four mtpa contracted, one mpta is contingent on a positive final investment decision on the first phase of Cheniere's Sabine Pass expansion project, according to the statement.

Sabine Pass' expansion could eventually add peak production capacity of up to about 20 million metric tons per year, including estimated gains from debottlenecking, and increase its total production capacity to more than 50 million metric tons per year.