Liquefied natural gas from Qatar: where there are still problems with LNG supply contracts

Liquefied natural gas should soon arrive at the first German terminals. But while China has secured long-term LNG from Qatar, Germany is making no progress with the contracts with the large supplier.

In order to be less dependent on Russian gas supplies, Germany is relying on liquefied natural gas (LNG), among other things. In the spring, Federal Economics Minister Robert Habeck signed a declaration of intent with Qatar, which is one of the world’s largest exporters. From 2024, the Gulf state is supposed to supply LNG on a large scale. So far, however, there are no concrete contracts.

Unlike with China: In the future, the People’s Republic will receive four million tons of LNG from the emirate every year – for 27 years. The agreement between producer Qatar Energy and the Chinese group Sinopec announced at the beginning of the week thus includes deliveries totaling 108 million tons. Why have German companies not yet made any concrete delivery commitments?

Disputes about prices, duration and flexibility

“The Qataris have decided not to make a good offer,” said Economics Minister Robert Habeck (Greens) in the summer. That’s why the companies got their gas elsewhere. “There is disagreement about the price, duration and flexibility of the contracts,” explains Andreas Schröder, industry expert at the energy analysis company ICIS tagesschau.de. Qatar is demanding a long-term commitment of around 20 years.

Germany, on the other hand, wants to commit itself for a maximum of five years because of the currently high prices for LNG, which is significantly more expensive than conventional gas due to liquefaction and regasification, and the desired decarbonization. “In addition, the floating LNG terminals that will soon go into operation are only chartered for this period,” says Schröder. Nor can it be ruled out that cheaper Russian gas will become an option again at some point.

In addition, Qatar wants to follow Germany Bloomberg-Information prohibiting resale of excess LNG to other states or cancellation of deliveries. “In the past, Qatar has often concluded contracts with so-called destination clauses that stipulate the delivery locations,” says Heiko Lohmann from the market observer Energate Gasmarkt in an interview tagesschau.de. The main hurdle in the agreements with Qatar is therefore the lack of flexibility, in addition to the long term.

Qatar second most important LNG supplier for Europe

“The companies have to see whether the whole thing is commercially viable at all due to the high prices and how they can protect themselves,” says Georg Zachmann, energy expert at the Brussels think tank Bruegel. Companies like Uniper, which import gas from Russia, would probably not have the opportunity to take such large financial risks at the moment.

The deal between Qatar and China could now make negotiations even more difficult. Because: “At least in terms of communication, this is a signal of strength for Qatar. The contract increases the pressure on European consumers because the large volume is no longer there for them,” says the expert Schröder. Although the Qatari deliveries to China do not cause a bottleneck, the consequences for the energy market are still great.

In the coming years, the desert state plans to expand its production by another 60 percent and thus finally become a major player on the market. From 2027, the country wants to produce 126 million tons annually. According to Schröder, Qatar was already the second most important LNG supplier for Europe after the USA this year with a share of around 19 percent. Russia still follows in third place. “If Russia and Qatar no longer deliver, 40 to 50 percent of the LNG exporters will disappear,” said Schröder.

Floating terminals just before the start of operations

Could that cause problems in the gas supply in this country? “I’m more relaxed about it,” says energy expert Lohmann. Of course, the companies tried to replace the lapsed Russian contracts with long-term LNG agreements in order to have security. But you don’t just have to focus on Qatar, there are other possibilities. In principle, the procurement of the liquefied gas by ship is much more flexible than conventional gas, since it does not flow through pipelines.

Germany and other European countries currently receive the LNG from Australia, Malaysia or Nigeria – but mainly from the United States. “The USA helped out with extreme increases this year,” says ICIS analyst Schröder. From a purely technical point of view, Germany could do without the liquefied natural gas from Qatar and rely on American supplies. “Then you work with a reliable partner, but are again dependent on one country.” This is exactly what the federal government wants to prevent.

So far, the LNG has been received and redistributed in the Netherlands, Belgium or France. In the meantime, however, the first terminals in Germany are about to start operations, after yesterday the first special ship for converting the liquid natural gas into the gaseous state arrived in Germany. The “Neptune” is to serve as a floating terminal in Lubmin near Greifswald from December 1st. The systems in Wilhelmshaven and Brunsbüttel are also scheduled to start up this year. But who actually supplies them?

Uniper, RWE and EnBW sign long-term contracts

“I’m currently assuming that the LNG terminals in Germany will initially be working to capacity,” says Schröder. The majority does not come via fixed long-term contracts, but from the so-called spot market, on which short-term quantities can be purchased via flexible ships. However, this means that Germany is vulnerable to the high price fluctuations that are caused in particular by cold waves, droughts or global political events.

A combination of short-term and long-term transactions is therefore necessary, says Lohmann. “The chartered floating terminals are a rather short-term affair anyway,” says the energy expert. For the stationary terminals in Wilhelmshaven, Stade and Brunsbüttel, which are scheduled to go into operation in 2025 and 2026 respectively, longer contracts would make sense in order to have planning security at all times. That has already happened in the past few months – independently of Qatar.

In September, for example, Uniper signed a long-term contract with the Australian company Woodside, which is valid from January until 2039. In the United Arab Emirates, RWE reached an agreement with the Abu Dhabi National Oil Company on multi-year deliveries from 2023. And EnBW also recently announced that it would also increase its planned liquefied natural gas purchases from the US company Venture Global LNG from 2026. Until then, LNG should continue to come primarily from the USA, even in short-term purchases.