Poland's Orlen Terminates QatarEnergy LNG Contract Amid Delivery Failures
Orlen Ends Long-Term LNG Deal with QatarEnergy
By Marwa Rashad
Contract Termination Details
LONDON, Nov 10 (Reuters) - Poland's largest energy group Orlen said on Tuesday it terminated one of its two long-term liquefied natural gas supply contracts with QatarEnergy after a force majeure left the supplier unable to meet its delivery obligations.
The move marks the first known termination of a long-term QatarEnergy LNG contract since the Iran war disrupted exports from the world's second-largest LNG exporter. It underscores the commercial toll of the conflict on Qatar's LNG business, which buyers had long regarded as one of the most reliable sources of supply.
Scope and Duration of the Contract
The contract covered 1 million metric tons of LNG per year and was due to remain in force until 2034. But Orlen said it exercised its right to terminate the agreement on Tuesday "due to an ongoing force majeure resulting in an inability to meet contractual delivery obligations," adding that the contract will remain in force for 60 days following the notice of termination.
Orlen said last month it expected Qatari LNG deliveries to resume in mid-November after a months-long hiatus caused by the war.
Impact of Force Majeure and Regional Conflict
QatarEnergy's Force Majeure Declaration
QatarEnergy declared force majeure in March following Iranian drone attacks on LNG facilities at Ras Laffan, while tanker traffic through the Strait of Hormuz was severely disrupted. The company did not immediately respond to a request for comment outside normal business hours.
Orlen's Alternative Gas Sources and Supply Security
Diversification of Gas Supply
ORLEN ALSO SOURCES GAS FROM NORWAY, US
Orlen also sources gas produced off the Norwegian continental shelf and in the United States. Earlier this month, Venture Global began commercial deliveries from the first phase of its Plaquemines export plant in Louisiana, where Orlen is a long-term customer. "The decision to terminate the Agreement does not affect the security of gas supplies. Gas production from the Company's own fields, together with its long-term gas supply agreements, ensures full coverage of Orlen Group's gas requirements," the company said in a statement.
Pricing Structures and Market Impact
Oil-Linked vs. Market-Linked Pricing
Orlen's agreement with QatarEnergy was based on a traditional oil-linked pricing formula that market participants estimate at around 16% of Brent crude. Such contracts were common when the companies signed the deal in 2009, but many buyers now have access to cheaper LNG, particularly from the US, under different pricing structures.
Comparison of LNG Contract Costs
Analysts estimate long-term US LNG contracts currently equate to around $6 to $7 per million British thermal units, less than half the cost of the oil-linked Qatari deal.
Continuation of Second QatarEnergy Agreement
Orlen will continue to take delivery under a second long-term LNG supply agreement with QatarEnergy, covering up to 1 million tons per year through 2034 under a pricing formula linked to gas market benchmarks.
Reporting Credits
(Reporting by Natalia Bueno Rebolledo in Mexico City and Marwa Rashad in London; Additional reporting by Marek Strzelecki in Warsaw; Editing by Leroy Leo, Jamie Freed, Rod Nickel)
