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Why Centrica and Qatar need Suncor’s gas

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Having failed to secure any gas last year when Centrica Plc attempted to negotiate a 20-year LNG supply deal with Qatar, the British utility has come up with another idea: bring Qatar to Canada to share the cost of a $1-billion purchase of gas assets from Suncor Energy Inc..

Centrica needs gas to supply and expand its U.S. business, where it serves 3.5 million residential customers, and the Suncor assets are a reasonable price at about $1 per mcf. Gas is cheap at the moment, with NYMEX pricing the Henry Hub benchmark gas price for May at just over $4, but if you take a reasonably bullish longer-term view of the market when North America begins to export its fuel, then Centrica may have done a very good deal.

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More interesting is the question why Qatar Petroleum International, the investment arm of Qatar Petroleum, is interested in a stake in Canadian gas. The Qataris have more gas than they know what to do with in the Persian Gulf, but that is precisely the problem. The emirate built a massive industry to freeze its gas for shipment to energy-starved nations in other continents, and while Asia still clamours for the Qatari product, the United States has no use for the numerous LNG regasification terminals built there over the last five years to import fuel.

QPI owns a controlling interest in Golden Pass, an LNG plant in Texas, with ExxonMobil, a major partner of Qatargas. It also owns a share in South Hook LNG, a regasification terminal in the U.K. where Exxon unloads its cargoes of Qatari fuel for consumption in gas-short Britain. The problem for the Qataris is that the U.S. gas import market has vanished and will not return for decades, but that gives them every reason to have an interest in a competing supplier.

The global gas market is in schism as U.S. prices have gone adrift from the global market. That will not continue for long. For Qatar, that means securing a share of a North American export business before the future scramble.

Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights.

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About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More

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