DOHA, Qatar: Pakistan and Qatar on Wednesday inked an agreement for supply of around US one billion dollars worth of Liquefied Natural Gas (LNG) to Pakistan annually to help the country meet its energy shortfall.
The agreement on Long Term LNG Sale and Purchase was signed during the visit of Prime Minister Muhammad Nawaz Sharif’s two day visit to Qatar. Minister for Petroleum Shahid Khaqan Abbasi and Chairman of Qatargas Board of Director 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 Brent value.
According to details of the Long Term LNG SPA with Qatargas the Qatar Liquified Gas Company Limited would sell Pakistan State Oil Company Limited, 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: 3.75 mtpa.
The Long Term LNG SPA also provides for annual upward and downward flexibilities upto 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 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 2000 MWs of electricity from power houses that were currently not operational.
The Petroleum minister said under the agreement Qatar would provide around US one billion dollars worth of LNG annually to Pakistan that 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 tons of LNG.
He said it would also help provide gas for the fertilizer factories and domestic users.
The Economic Coordination Committee of the Cabinet (ECC), authorized negotiation with Qatargas for import of LNG upto 500 mmcfd in July 2013. In August 2014, the ECC constituted LNG Price Negotiation Committee (PNC) comprising of Secretary Petroleum as Chairman, Representatives of Finance Division, Water and Power and BOI, Managing Director SNGPL, Managing Director SSGCL, Managing Director PSO and Managing Director ISGSL (Secretary Committee).
The Price Negotiation Committee after a series of meetings with Qatar gas finalized the price and key commercial terms of the Long Term LNG SPA with Qatargas.
The ECC in its meeting held in January 13 accorded in principle approval of the recommendations made by PNC and also allowed PSO as Buyer to execute the Long Term LNG SPA with Qatargas as 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 the details available Qatargas has a cap on port charges at US$ 320,000 per shipment. Port charges over and above of that will be paid by PSO. PQA charges are presently around USD 750,000.
The price comparison provided by the Ministry of Petroleum at $40 Brent states:
Mashal Project US $ 6.94 /MMBtu
Integrated Project US $ 6.01/MMBtu
Qatar Last Offer US $ 6.56 /MMBtu
IP Border Rate US $ 5.70 per MMBtu
TAPI Border Rate US $ 5.90 per MMBtu
Qatar Current US $ 5.35/MMBtu
The prices mentioned above are based on last three months of Brent average of US $ 40.