Pakistan seals $16b LNG deal with Qatar

• Under the agreement the price for each LNG cargo in a particular month has been agreed at 13.37% of Brent, where Brent value is average of the preceding three months
• Minister Abbasi says LNG from Qatar is being purchased at best available rates and would help start production of 2,000 MW of electricity from powerhouses that are currently not operational

Pakistan and Qatar on Wednesday inked an agreement for supply of around $16 billion worth of Liquified Natural Gas (LNG) to Pakistan annually to help the country meet its energy shortfall.

The long term LNG Sales Purchase Agreement (SPA) was signed during the two-day visit of Prime Minister Nawaz Sharif’s to Qatar. Minister for Petroleum Shahid Khaqan Abbasi and Chairman of Qatargas Board of Directors Saad Sherida Al-Kaabi signed agreement at a ceremony at Diwan-e-Emiri.

Under the agreement the price for each LNG cargo in a particular month has been agreed at 13.37% of Brent, where Brent value is average of the preceding three months.

According to details of the long term LNG SPA with Qatar Gas, the Qatar Liquified Gas Company Limited would sell Pakistan State Oil Company Limited (PSO), LNG for a period from 2016-2031.

The annual Contract Quantity for 2016 has been agreed at prorate of 2.25 mt; for 2017 Q1, prorate of 2.25 mt and for 2017 Q2 to 2031 of 3.75 mtpa.

The LNG SPA also provides for annual upward and downward flexibilities of up to three LNG cargoes per contract year. Downward flexibility can be accumulated for two contract years.

The payment terms state that the PSO would make payment 15 days after completion of unloading.

Pakistan is currently facing a severe shortage of natural gas for its electricity generation and industrial use and estimates put the supply-demand gap at around 2-4 bcfd.

Minister for Petroleum Abbasi later told media that the import of LNG from Qatar, besides boosting Pakistan-Qatar ties, would also help Pakistan meet its energy needs.

He said the LNG from Qatar was being purchased at the best available rates and would help start production of 2,000 MW of electricity from power houses that are currently not operational.

The Petroleum minister said under the agreement, Qatar would provide around $1 billion worth of LNG annually to Pakistan which would meet 20 per cent requirements of the country. He said the deal would help the country get out of its energy crisis and provide 35 million tonnes of LNG.

He said it would also help provide gas for the fertiliser factories and domestic users.

The Economic Coordination Committee of the Cabinet (ECC), authorised negotiation with Qatargas for import of up to 500 mmcfd of LNG in July 2013. In August 2014, the ECC constituted LNG Price Negotiation Committee (PNC) comprising Petroleum secretary as chairman, representatives of Finance Division, Water and Power and BOI, SNGPL managing director, SSGCL managing director, PSO managing director and ISGSL managing director who was appointed committee secretary.

The PNC after a series of meetings with Qatargas finalised the price and key commercial terms of the Long Term LNG SPA with Qatargas.

The ECC in its meeting held on January 13 accorded in principle approval to the recommendations made by PNC and also allowed PSO as buyer to execute the SPA with Qatargas as the seller.

Under the agreement the two sides can review the price once after the 10th anniversary of the start date.

“And if it fails, either party may terminate the SPA with effect from the end of the contract year in which the termination notice was served in which case the supply period can be as short as 11 years,” the agreement said.

According to details, Qatargas has a put cap on port charges at $320,000 per shipment. Port charges over and above that amount would be paid by PSO. PQA charges are presently around $750,000.

The price comparison provided by the Ministry of Petroleum at $40 Brent states that the price in Mashal Project is $6.94 per mmbtu while in Integrated Project, the price of LNG is $6.01 per mmbtu. Qatargas’ last offer was $6.56 per mmbtu. The LNG price under the SPA, which currently stands at $5 per mmbtu is lower than the Iran Pakistan pipeline border rate of $5.70 per mmbtu, as well as TAPI border rate of $5.90 per mmbtu. The prices mentioned above are based on last three months of Brent average of $40.