Poland's Orlen Cancels QatarEnergy LNG Contract Amid Supply Disruptions

Poland's energy company Orlen has officially terminated a long-term liquefied natural gas (LNG) supply contract with QatarEnergy. The decision stems from QatarEnergy's reported inability to fulfill delivery obligations, a situation exacerbated by ongoing disruptions to shipments through the Strait of Hormuz due to the Iran war.

Orlen invoked its right to end the agreement, citing an "ongoing force majeure" event that prevented QatarEnergy from meeting its contractual commitments, according to a regulatory filing on Tuesday. The terminated contract, valued at an estimated €570 million ($637 million) for this year, involved 1 million tonnes of LNG annually, with pricing linked to crude oil. Originally signed in 2009, deliveries commenced in 2016 and were scheduled to continue until 2034. The termination will take effect 60 days after the notice is issued.

Importantly, Orlen will maintain a separate contract with QatarEnergy for up to 1 million tonnes of LNG per year until 2034, which is tied to gas prices. The company emphasized that this cancellation will not compromise Poland's gas supply security, as the nation has its own gas fields and other supply agreements in place.

This marks the first instance of a customer canceling a contract with QatarEnergy, a significant global LNG supplier that accounted for approximately one-fifth of the world's LNG supply before the recent conflict. Bloomberg reported that missile strikes in March severely damaged two of the 14 production units at Qatar's primary LNG export facility, prompting QatarEnergy to declare force majeure on shipments for the first time. The force majeure clause, a legal provision allowing suppliers to miss deliveries due to uncontrollable events, has been extended monthly by QatarEnergy, with the latest notice covering shipments until the end of the year. This has compelled buyers in Europe and Asia to seek costly spot cargoes at multi-year high prices.

In response to these supply challenges, Orlen has secured new LNG supply deals with projects in Texas and Louisiana, including Port Arthur and Plaquemines.