Before the Iran war, Qatar was one of the world’s largest exporters of natural gas. After just eight months, the Gulf state now sources its supplies from its main competitor, the United States.
QatarEnergy reached an agreement on Thursday with a US exporter Chénie Energy to purchase 4 million tonnes of liquefied natural gas, or LNG, per year until 2054. The purchase price is indexed to the US Henry Hub price plus fixed costs. Deliveries are expected to begin in the 2030s.
“We look forward to reliably delivering QatarEnergy from Sabine Pass and Corpus Christi into the second half of this century,” Cheniere CEO Jack Fusco said in a statement.
The gas Doha will buy represents less than 1% of global LNG trade, or more than 400 million tonnes. But “in terms of an individual deal, it’s about as big as in the United States,” said Alex Munton, global director of gas and LNG at Rapidan Energy in Houston.
The deal highlights how the war in Iran is reshaping global energy markets to benefit U.S. companies, strengthening the dominance of U.S. LNG exporters. Actions of Chéniere and Global Companythe other independent American player, has gained 26% and 40% respectively since the start of the war.
Qatar eliminated
Before the war, Qatar was the second largest exporter of LNG behind the United States. But shipments have since collapsed in the eight months since Iran bombed its key production facility at Ras Laffan. The attack severely damaged two production lines, destroying around 17% of Qatar’s LNG export capacity.
It will take about three years to repair the damage in Ras Laffan, Qatari Energy Minister Saad Sherida Al-Kaabi said. The Persian Gulf state has declared force majeure – citing unexpected and uncontrollable events preventing compliance with contracts – every month since the March attack.
“This has dealt us a big blow, if you like, to our production capacity for the next few years,” Al-Kaabi said in an interview on the sidelines of the United Nations General Assembly in September. Qatar currently exports “very little” LNG because “we cannot export through the Strait of Hormuz,” he said.
“Very sparingly, some ships cross the strait, but in very small quantities, it is not something that would be measurable even in a percentage point,” said the Minister of Energy.
Freedom of navigation
And it’s unclear what security conditions in Hormuz will look like once repairs are completed at Ras Laffan. The decades-old contract with Cheniere indicates that Qatar sees a risk that freedom of navigation may never return to Hormuz as Iran continues to attack oil tankers, Munton said.
It is more difficult to find ways around Hormuz in the case of LNG because it is fundamentally a water-based product, the analyst said.
“It’s liquefied so it can be put on a ship and that requires access to shipping routes,” Munton said. “They need to access the Strait of Hormuz. There’s no other way to get the LNG to market. They’re just stuck.”
With its production badly damaged and Hormuz blocked, QatarEnergy is expanding its LNG trading business through the Cheniere deal, Munton said.
It secured a $3 billion loan earlier this month from Chinese banks, which could allow it to secure more U.S. LNG to meet its international delivery commitments, UBS analyst Manav Gupta said in a note to clients Thursday.
Bullish Wall Street
Venture Global, for example, is in advanced talks with QatarEnergy to supply 3 million tonnes per year, unnamed sources told Reuters.
With the Qatar deal, Cheniere refutes the bears’ thesis that it will struggle to secure additional sales, which would limit its capacity expansion, Gupta said. UBS has a $340 price target on Cheniere, implying an 18% upside from Thursday’s close.
Wall Street is generally bullish on both Cheniere and Venture Global. Nearly 90% of stock analysts who cover Cheniere rate it a buy, with an average price target of $314, implying an upside of about 9% from Thursday’s close.
Nearly 60% of analysts recommend Venture Global as a Buy, with the rest viewing it as a Call Option. The average price target of $17 would represent an upside of about 35% from Thursday’s close.
“The United States is once again being called upon by buyers to diversify its offering,” Munton said. “There are so many things being built in the United States that it’s getting to the point where the United States is now becoming disproportionate in terms of global (LNG) market share.”
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