QatarEnergy is buying LNG from US producers, its biggest international competitors, as importers pay closer attention to whether a supplier can deliver. Qatar can produce LNG for an estimated USD 3-5 / mmBtu, roughly half the cost of many US projects, according to industry estimates cited by Reuters. But after months of disrupted shipping through Hormuz, cheap LNG does an importer little good if it can’t leave the export terminal.

Flexibility is becoming the edge: A supplier that can ship from several hubs, redirect cargoes, and guarantee delivery in its contracts may be worth as much to buyers as the cheapest one. QatarEnergy now has to show it can turn its growing international portfolio into that advantage, and the alternative is that more bargaining power passes to US exporters and global LNG traders.

The latest addition to QatarEnergy’s US LNG buying spree: The company is negotiating additional long-term agreements to purchase 3-6 mn tons of US LNG annually, with talks involving Venture Global and Kimmeridge-backed Commonwealth LNG, Bloomberg reports. The latest push also includes advanced discussions to secure up to 2 mn tons annually from NextDecade’s proposed sixth liquefaction train at its Rio Grande LNG project in Texas, Reuters reports.

Arbitrage, anyone?

LNG suppliers are increasingly competing over who controls the cargo after it leaves the terminal. QatarEnergy’s US purchases give it LNG it can market internationally. Cheniere volumes priced against the Henry Hub benchmark plus a fixed liquefaction fee, with QatarEnergy responsible for shipping. This gives the company flexibility to capture price differences between regional markets, while also providing an alternative source of supply that it can redirect to customers if Qatari production is disrupted.

What’s in it for the other team(s)? US developers get something out of the agreements too: long-term sales commitments that help support their projects, while QatarEnergy keeps the trading value that comes after.

Cargoes that can go anywhere have sold at a premium: Importers buying on the spot market paid an average of USD 21.5 / mmBtu in Asia and nearly USD 20 / mmBtu in Europe between March and October, according to the IEA. Buyers in both regions were competing for the same flexible cargoes, so the gap between Asian and European prices narrowed as the year went on.

Whether that premium carries into long-term contracts is less clear. Portfolio players with access to several production sources have a growing advantage over single-source suppliers, Jamie Ingram, managing editor at the Middle East Economic Survey (MEES), tells EnterpriseAM. Buyers, though, may not pay more for the added security. “If some suppliers are willing to offer this at no extra cost then it will be harder for others to push for a premium. It’s also worth noting that such flexibility also has benefits for suppliers as they can then capitalize on price arbitrages within their own portfolio,” he adds.

Others see more room to charge for security, at least while the war lasts. Suppliers could add fees for delivery guarantees, higher liquefaction fees, delivery options, or structured portfolio premiums, Anne-Sophie Corbeau, global research scholar at Columbia University’s Center on Global Energy Policy, tells us. The risk is with price-sensitive buyers. Some importers might accept higher costs for more certain supply, but Southeast Asian countries could rethink their reliance on LNG if securing it keeps getting more expensive. “Southeast Asian countries would wonder: why am I turning to LNG again? So that may undermine long-term demand for LNG,” she adds.

A backup origin comes at a cost: “Guaranteed access to alternative origins has a cost. It may require [wagering] on uncommitted volumes, securing additional shipping slots. Someone will have to bear the costs. Buyers must distinguish between paying for a diversified portfolio and paying for replacement cargoes. These two are not interchangeable. Whether offtakers will accept that premium will depend on their exposure, available alternatives, and willingness to pay for security,” Mehdy Touil, lead LNG specialist at Calypso Commodities, tells us.

The fine print

The next ask is a choice of origin: India’s Petronet LNG is already negotiating with QatarEnergy to source part of its renewed 7.5 mn-ton annual agreement from the US. Other importers could follow, negotiating access to several production origins instead of relying on a single export facility.

For now, the origin is fixed: Under QatarEnergy’s current contracts, the LNG has to come from Qatar, so the company can’t automatically swap in US cargoes when Qatari supply is disrupted, Ingram says. “Going forward, as QatarEnergy contracts expire, buyers might renegotiate to replace this clause with more flexible terms for LNG to be sourced from across QatarEnergy’s portfolio,” he adds.

Force majeure can suspend a 20-year contract’s deliveries: The war has exposed the difference between contractual security and physical delivery, Touil tells us. A long-term sale and purchase agreement (SPA) doesn’t necessarily ensure cargoes during geopolitical disruptions, with force majeure provisions potentially allowing suppliers to suspend deliveries without breaching their obligations. “Offtakers will now pay more attention to supply origin, substitution rights, and alternative arrangements. However, markets have a very short memory, it is too early to see firm backup guarantees becoming standard contractual terms,” he argues.

Securing the clause is only half of it: Replacing lost deliveries also takes available cargoes and shipping capacity, Kate Dourian, a board member of the Energy Institute’s Middle East branch, tells us. Access to US production lets QatarEnergy offset financial losses during disruptions, but it doesn’t ensure a replacement cargo will be there. “Greater supply security also comes at a cost. Maintaining alternative sources of supply and shipping flexibility requires investment, and suppliers will naturally seek to recover those costs. Whether buyers are willing to pay a premium is another matter, particularly as additional LNG capacity enters the market. Competition could limit suppliers’ ability to pass on these costs,” she adds.

A portfolio of origins still needs spare plants behind it: QatarEnergy may have access to LNG from both Qatar and the US, but that doesn’t mean American terminals can increase output to replace disrupted Qatari cargoes, Touil says. Most liquefaction facilities are already close to or above their nameplate capacity, leaving little room to ramp up production on demand. Actual replacement supply requires spare liquefaction capacity, available feed gas, and shipping flexibility. “I think the industry is confusing geographical diversification with redundancy,” he says.

Location, location, liquefaction

Buyers aren’t waiting for new contracts to shop elsewhere: Non-Gulf LNG production rose 14% y-o-y between March and October, offsetting around two-thirds of the decline in Gulf deliveries, according to the IEA. Asian buyers doubled their imports from the Atlantic basin, mostly from the US, and all four major liquefaction projects to reach final investment decision since March are in North America.

US exporters have gained ground, for now: Buyers are putting more weight on supply security and on spreading their sources, which has helped US LNG, Dalga Khatinoglu, editor-in-chief of Caspian Energy Intelligence, tells us. Whether that adds up to a lasting shift in market power is still unclear, he says, and Asian buyers are “unlikely to abandon Qatari LNG simply because of the risks surrounding Hormuz, particularly if Qatar offers sufficiently lower prices to make those risks economically acceptable,” he adds.

The Gulf’s biggest producers are becoming traders themselves: “Looking at QatarEnergy and Adnoc as the most ambitious Gulf producers, they are transitioning into global portfolio players built on a foundational domestic production base, providing them with the best of both worlds. They already control their own shipping fleets, meaning they aren’t exposed to global freight prices and are increasingly building their trading capabilities,”

Adnoc already has that spread of supply, combining its domestic production base with LNG in the US, Mozambique, and Australia, Ingram says.

QatarEnergy’s missing piece: “Building a global portfolio will strengthen QatarEnergy’s position as it will have alternative supply sources closer to some buyers than its domestic facilities, but in order to fully capitalize on this it will need to develop an integrated marketing platform,” Ingram argues. “QatarEnergy insists that the third phase of its North Field expansion, NFW, will go ahead, but the commercial rationale for this project is now increasingly being called into question,” he adds.

Chokepoint risk is becoming part of how LNG projects are judged. Chokepoint exposure and physical deliverability are becoming more important in evaluating new LNG investments, Touil tells us. Projects outside major shipping bottlenecks could become more attractive, but their economics will depend on feed gas security, operational reliability, shipping availability, and execution. “However, buyers will add resilience considerations on top of the traditional cost metrics. For QE’s expansions, I don’t see the conflict invalidating the projects’ economics,” he adds.

Australia is the competitor that often gets left out of the Qatar-US comparison. It is one of Qatar’s most important rivals in Asia, sitting closer to the big East Asian buyers, and its exports don’t pass through Hormuz, Khatinoglu says. “However, production costs at some Australian projects are relatively high,” he adds.

THE BOTTOM LINE- “The market is experiencing a permanent structural shift. Geopolitical risk and security of supply are now very important drivers when it comes to gas trading and contracting,” Corbeau says. Even the largest portfolio players can’t fully make up for a large global production shortfall by redirecting the cargoes they have, she notes, and “QatarEnergy will have a lot of LNG to sell.”