August 26, 2015 / 2:20 PM / 4 years ago

Qatar and PetroChina alter LNG supply deal, winter spot price fallout

MILAN, Aug 21 (Reuters) - Gas giant Qatar has agreed with PetroChina to skew deliveries under an existing long-term liquefied natural gas (LNG) supply deal towards the peak demand winter period, a shift likely to weigh on global spot prices.

The concession to PetroChina fits Qatar’s recent pattern of adapting to long-term buyers needs, as it becomes more commercially savvy and active on spot markets, to hold onto its share of the prized Asian market.

Qatargas, the world’s biggest LNG exporter, has skewed the 3 million tonnes of LNG annually contracted to PetroChina towards the winter, two sources with knowledge of the matter said.

The deal only extends to this winter, one of the sources said, but could be renewed when PetroChina and Qatar discuss their delivery programme for 2016 later this year.

Supplies under the 25-year deal, which began in 2011 and in which Shell is also involved, previously arrived steadily throughout the year.

PetroChina requires more LNG in winter because its three import terminals are situated on China’s northern coast, most exposed to cold weather.

Chinese imports from Qatar have already fallen 42 percent in the first seven months of 2015 compared with last year, illustrating the impact of the changes.

SPOT MARKET IMPACT

With PetroChina’s winter gas demand now largely filled through Qatari diversions, global LNG markets should see less Chinese buying on spot markets this winter, putting pressure on prices, a trader said.

In past years Chinese winter buying sparked several spot LNG price rallies, notably in winter 2013/2014.

But weak global demand and rising supply have since depressed prices to five-year lows at $7.90 per mmBtu, down 60-percent from February highs last year.

“This just shows how even established suppliers are coming under pressure in this market,” a senior commodities finance banker told Reuters.

RasGas, a sister company of QatarGas, is already embroiled in talks with Gail India over changing its long-term contracts, a source at the company told Reuters.

While Qatar has a track record of meeting Chinese buyers half-way, such as by arranging short-term supplies for additional winter needs, it has generally proven reticent to meddle with long-term LNG contracts that form the bedrock of its business.

The latest supply rejig with PetroChina does not constitute a change to the underlying long-term sales agreement.

But emerging pressures bearing down upon Qatar’s long-term gas sales strategy, especially competing suppliers in Australia and the United States, are forcing it to cut sweeter deals to lock-up the remainder of its unsold gas, sources have said.

Qatar is currently in talks with Pakistan to seal a major new export deal.

Editing by David Evans

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