EU opens investigation into Qatar Petroleum over potentially restrictive gas contracts

Last week, the European Commission has announced it has opened a formal investigation against Qatar Petroleum over supply agreements that appeared to be restrictive for European buyers. In particular, the EU watchdog’s probe was launched to assess whether supply agreements between Qatar Petroleum, the bloc’s biggest sea-borne gas supplier, and European importers of liquefied natural gas (LNG), have hindered the free flow of gas within the European Economic Area, in breach of EU antitrust rules. The move follows the settlement of a seven-year antitrust case against Russian giant Gazprom last month, and it comes as part of a precise plan by the European Commission to remove restrictions in the EU gas market. Background Since a few years, LNG producers have come under increasing pressure to remove fixed destination clauses. The so-called destination clauses are a fixture of long-term LNG deals that anchor buyers to receiving shipments at a specific port, thereby preventing cargo diversions to other ports. The EU courts and previous Commission precedents have already applied the principle that contracts that restrict the territory into which the buyers can sell products have as their object the restriction of competition within the meaning of Article 101 TFEU. Just a few weeks ago, the EU has wrapped up a seven-year probe into Russian giant Gazprom over potential market abuse, where the Commission has investigated territorial restrictions in the gas sector in the form of export bans and destination clauses. The Commission – under Article 102 TFEU – has established binding commitments on Gazprom that aim at enabling the free flow of gas at competitive prices in the Central and Eastern European gas markets. Last week’s move Last Thursday, the EU’s watchdog has decided to formally proceed against Qatar Petroleum as per Article 101, opening an official antitrust investigation. The probe into Qatar’s LNG deals follows detailed consultations between the European Commission and Japan’s Ministry of Economy, Trade and Industry during last year, aimed at exploring the impact of such curbs on gas market development and price transparency, as reported last week by Reuters. In recent months, the Japanese government and other LNG importers have been calling for more flexible supply contracts without destination clauses, which prohibit importers from re-selling LNG. Japan is among the biggest LNG buyers in the world. “Problematic restriction clauses” “We have opened an investigation to look at whether there are problematic territorial restriction clauses in gas supply contracts with Qatar Petroleum”, Commissioner Margrethe Vestager, in charge of competition policy, announced last week. “Such clauses may harm competition and prevent consumers from enjoying the benefits of an integrated European energy market”, she added. “Energy should flow freely within Europe, regardless of where it comes from”, Commissioner Vestager also said. In an official EU press release, the Commission has declared it is concerned that certain clauses contained in these agreements appear to, directly or indirectly, restrict the EEA importers’ freedom to sell the LNG in alternative destinations within the EEA. “For example, some contractual clauses prevent any diversion of cargoes to another destination or restrict the territories to which diversion can take place or the volumes that can be diverted”, the EU doc said. “As a result, these clauses may unduly limit the free flow of LNG sold by Qatar Petroleum in the EEA, segmenting the EU’s internal gas market”, the statement said. Qatar giant “Qatar Petroleum wishes to stress that it gives the highest importance to compliance with regulatory authorities in all geographical areas in which it operates”, the Qatar state owned petroleum company responded to the EU through an official release last week. “Qatar Petroleum looks forward to working with the European Commission to address any queries or concerns they may have in this regard”, the QP statement also said. Qatar Petroleum is the largest supplier of LNG in Europe, accounting for around 40% of the EU’s overall LNG imports and significantly higher import shares in certain Member States. according to data from the International Group of LNG Importers, Qatar supplied 16.81 million tonnes of LNG last year, compared to 38.65 million tonnes in total. Nigeria and Algeria were the next biggest suppliers with just over 7 million tonnes. Qatar is the world’s biggest LNG producer. Risks ahead If proven by EU investigators, such antitrust practices may breach EU antitrust rules, specifically on anticompetitive agreements between companies and/or on the abuse of a dominant market position, as per article 101 TFEU and 102 respectively. The Financial Times reported last week that, according to Trevor Sikorski, head of natural gas and carbon at consultants Energy Aspects, Qatar Petroleum could face fines of up to 10 per cent of its global turnover. “The more likely outcome is they agree to remove all restrictive destination clauses in their supply agreements with European buyers”, Reuters quoted Mr. Sikorski as saying. “The Commission will now carry out its in-depth investigation as a matter of priority”, the EU’s watchdog said in its official statement last week. “An opening by the Commission of a formal investigation does not prejudge its outcome”, the release specified.