Liquefied natural gas: Govt seeks to negotiate Gwadar pipeline cost

Forms committee to discuss cost reduction with Chinese company

ISLAMABAD:

The government has constituted a price negotiation committee in an attempt to seek a further reduction in the cost estimated by a Chinese company for laying the Gwadar liquefied natural gas (LNG) pipeline and setting up a terminal, an official says.

This project will work as an alternative to the Iran-Pakistan (IP) gas pipeline project and will be executed by the government in cooperation with the Chinese firm on a government-to-government basis.



Under the plan, the LNG pipeline will be laid from Gwadar to Nawabshah and the terminal will be set up at Gwadar port.

The price of steel, which stood at $1,300 per ton when the engineering consultant ILF gave the cost estimate, has come down to $900-$1,000 per ton. The consultant put the total cost of the pipeline and terminal at around $2.5 billion because of the fall in steel and compressor prices.

“However, the Chinese company has offered to develop the project at a cost standing below $2 billion in the financial bid opened by Interstate Gas Systems (ISGS),” a senior government official said, adding a price negotiation committee had been set up to negotiate a further reduction in the cost.

“The bid was much lower than expected,” the official said. Earlier, ISGS had expected the cost of 700 km of LNG pipeline from Gwadar to Nawabshah at $2.5 billion.



He said the pipeline would be connected to the Iranian border at a cost of $200 million after sanctions against Tehran were lifted.

State-owned distribution companies - Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) - will also get a share in pipeline construction as the Chinese company, China Petroleum Pipeline Bureau, is bound to award 30% of work to them.

“This is a significant development that shows Pakistan is serious about kicking off work on the IP pipeline, but its implementation hinges on lifting of global sanctions against Iran,” ISGS Managing Director Mobin Saulat told The Express Tribune. ISGS is working to develop gas import projects.

Initiating the bidding process for the Gwadar pipeline indicated that Pakistan was truly interested in pushing ahead with the IP project.



China Petroleum Pipeline Bureau, selected by the Chinese government to lay the LNG pipeline and set up the terminal, had submitted the technical and financial bid for evaluation.

The company is already working on pipeline projects stretching over 8,000 km in different countries including Myanmar, Bangladesh, Russia and other nations. It has also laid pipelines from Turkmenistan to China.

“This is the first project under the China-Pakistan Economic Corridor for which the technical and financial bids have been opened,” another official said.

The Chinese government would provide a cheap loan covering 85% of the project cost and the Pakistani government would contribute 15% of funds.

The Chinese firm will build the new terminal - a floating storage and re-gasification unit (FSRU) - which will be owned by ISGS. The terminal will have the capacity to handle imports of 600 million cubic feet of LNG per day (mmcfd).

The LNG pipeline, which will be of 42-inch diameter, will be laid on the IP pipeline corridor from Gwadar to Nawabshah.

Published in The Express Tribune, December 25^th, 2015.

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