Shell to lose $1billion contract as Qatar offers Pakistan lower price

Published: January 15, 2016


ISLAMABAD: Energy giant Royal Dutch Shell is going to lose a five-year liquefied natural gas (LNG) supply contract worth over $1 billion as a Qatari company has agreed to provide the commodity at a lower price to Pakistan.

Gunvor and Royal Dutch Shell had won supply contracts in response to the two tenders floated by Pakistan State Oil (PSO) a few weeks ago for bringing 120 LNG cargoes over a period of five years.

ECC likely to give green light to multibillion dollar LNG deal

Gunvor offered to bring 60 cargoes at 13.37% of Brent crude price whereas Shell quoted 13.8% of Brent crude price for another 60 cargoes.

During negotiations after the opening of bids, Qatargas agreed to match the price offered by Gunvor, which was the lowest, prompting the government to consider scrapping the contract with Shell and award it to the Qatari company.

This was disclosed in a meeting of the Economic Coordination Committee (ECC) on Wednesday this week, which approved a long-term LNG supply agreement worth $15 billion.

The ECC was told that the government would save a substantial amount by transferring the contract won by Shell to Qatar at a lower price. However, Gunvor’s contract will remain intact.

Long-term LNG supply deal still awaited

In the tenders, nine trading firms including commodities giant Vitol, Glencore, Trafigura, Marubeni and US-based Excelerate Energy had submitted bids but all were rejected.

Owing to the plunge in crude oil prices, Shell is focusing on LNG business in the world market. During the previous Pakistan Peoples Party government too, Shell had tried to strike an LNG deal with Pakistan, but failed due to a controversy over the Mashal LNG project, which landed in the Supreme Court.

Pakistan produces 4 billion cubic feet of natural gas per day (bcfd) against demand for over 6 bcfd. The government considers LNG as a fast-track source to bridge the growing energy shortfall.

The lower price offer on the part of Qatar came after Petroleum and Natural Resources Minister Shahid Khaqan Abbasi visited Doha on January 6 and sought a reduction in the LNG rate. Qatar agreed to match the price offered by Gunvor for the short-term supply contract spread over five years.

Pakistan inks LNG deal worth $16b with Qatar

Earlier, Pakistan and Qatar had finalised a long-term supply deal at 13.9% of Brent crude price. The two sides are going to sign a commercial agreement as the ECC has given the go-ahead. Reports suggested that India had struck an LNG deal with Qatar at the lowest price, but Petroleum Minister Abbasi insisted the Indian price was 20% higher compared to the rate agreed between Islamabad and Doha.

Under the proposed arrangement, the long-term LNG supply contract will be for 15 years, but it will be renegotiated after 10 years. The two sides can end the contract if they fail to develop consensus over the price.

Every three months past price of LNG would be taken to calculate the price with Qatar.

As part of the agreement, PSO will receive 1.5 million tons of LNG from Qatargas in the first year and the annual volume will be enhanced to 3 million tons from the second year.

Published in The Express Tribune, January 15th, 2016.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

Facebook Conversations

Reader Comments (6)

  • cautious
    Jan 15, 2016 - 3:52AM

    So you allow companies to bid … award the low bid winner a contract – then turn around and renege on the deal when someone comes along later and says they will match the deal. No wonder you have a hard time getting companies to bid on LNG deals.Recommend

  • Virkaul
    Jan 15, 2016 - 9:59AM

    Such acts are considered unethical. In International Competitive Bidding (ICB) if the owner is not satisfied with pricing structure offered by bidders, it can call L1 for negotiations or realist the tender or RFQ. Inviting bids and then going a party not part of bidding process is unethical and probably involves kickbacks.Recommend

  • abdullah
    Jan 15, 2016 - 10:53AM are not buying a scotch tape for a grocery store that you will go for an RFQ.There are a lot of technicalities involved in such projects.A proper bid is the only way for it.RFQ is usually prepared by the bidding teams for the sales team in a company to have an idea of what they can expect or how much they can suggest when it comes to price.Recommend

  • Rustam
    Jan 15, 2016 - 7:45PM

    @cautious – From the language of the news article, I understand that the Gunvor and Royal Dutch Shell had submitted the lowest bids, however, no contract was signed with them. I know in almost all such tenders there is a conditions that the client can cancel the tender. The suppliers do bid ignoring such condition.Recommend

  • Rustam
    Jan 15, 2016 - 7:54PM

    @Abdullah – You have correctly stated the status of a RFQ. The news article may be half story and does not detail the procedure that had happened. Even if it was a competitive seal bid with the explicitly stated condition that client has option to cancel the tender, it would have been fine. Without any specific information, nobody has right to pass judgement, as others have attempted to.Recommend

  • Ch. KA Nye
    Jan 16, 2016 - 1:04PM

    The option to cancel a tender?? They awarded Gunvor so the tender wasn’t cancelled. Only Shell”s award was cancelled to favour Qatar. The reality is that the GOP has sent a signal: to don’t bother to bid in a tender. Just come in later in the guise of a ‘Government-to-Government’ deal and get a contract. Something smells here and it isn’t at all pleasant.

    The global energy market is bearish. It’s a Buyer’s market and we are not leveraging our position as a Buyer. The GOP is happy to push through all sorts of deals to ensure that they have enough money to buy the next election. Recommend

More in Business