EU probes Qatar’s long-term LNG contracts

LONDON/BRUSSELS: The European Commission is investigating the bloc´s biggest sea-borne gas supplier Qatar Petroleum over potentially restrictive 20-year supply agreements inhibiting development of a single gas market, its latest challenge to a major gas supplier.

The bloc, having just wrapped up a seven-year market abuse probe into Russian giant Gazprom, said it sought to determine if Qatar´s liquefied natural gas (LNG) supply deals with European utilities barred them from diverting shipments within the region.

So-called destination clauses are a fixture of long-term LNG deals that tie buyers to receiving shipments at a specific port, thereby preventing cargo diversions that could undercut Qatar in a third market.

Qatar is the world´s biggest LNG producer and its geographical location between Europe and Asia also allows it to swing supply to the most lucrative market, which causes periodic supply shortages particularly in northwest Europe.

Roughly speaking, Qatar offers two types of LNG supply arrangements in Europe.

The classic long-term deal prevalent across southern Europe forces the buyer to take or pay for a fixed annual quantity of LNG even if they do not need it.

In such cases, diversion curbs may limit the benefit to Europe given that Italy´s Edison, for example, couldn´t freely send emergency supplies of Qatari LNG to plug potential shortfalls in southern France.

The second contract type confined to northwest Europe leaves it largely up to Qatar as to how much LNG arrives at port. The world´s biggest LNG importer Japan has led the backlash against destination curbs in LNG deals, a throwback to a time when producers held the upper hand, after its Fair Trade Commission last year banned the practice in any new deals.

The probe into Qatar´s LNG deals follows extensive consultation between the European Commission and Japan´s Ministry of Economy, Trade and Industry in recent months exploring the impact of such curbs on gas market development and price transparency, workshop presentations seen by Reuters show.