Pakistan, Qatar in deadlock over LNG price

Published: April 4, 2012

CHEAPER OPTIONS: $11 is the cost of gas from Iran. $13 is the cost of gas from Turkmenistan. CREATIVE COMMONS

ISLAMABAD: Talks between Pakistan and Qatar over the price for liquefied natural gas (LNG) have reached a deadlock as the latter is stuck to its stance and is not ready to supply gas at less than $18 per million British thermal units (mmbtu).

“Qatar has refused to export LNG below the price of $18 per mmbtu,” said a senior official of the Ministry of Petroleum and Natural Resources who is familiar with the developments.

Pointing to the reason, he said global LNG demand had surged and prices had increased following shutdown of nuclear power plants in Japan.

In comparison, gas import from Iran will cost $11 per mmbtu while gas supply through Turkmenistan-Afghanistan-Pakistan-India pipeline will cost $13 per mmbtu.

“Following Qatar’s reluctance to show flexibility, Petroleum Minister Dr Asim Hussain will visit Malaysia to discuss the possibility of LNG import,” the official said.

Last month, a government delegation went to Qatar to finalise a price for the import of LNG on government-to-government contract. Pakistan and Qatar have already signed a memorandum of understanding (MoU) in this regard.

According to the MoU, Pakistan will import 500 million cubic feet of LNG per day (mmcfd) which will be utilised to generate 2,500 megawatts of electricity.

Earlier, in a meeting of Pak-Qatar Joint Ministerial Commission held in the last week of February in Islamabad, Qatar sought a price of $18 per mmbtu, but Pakistani authorities believed that Doha would show flexibility in its stance later. Qatar also sent a term sheet seeking $18 per mmbtu for LNG.

In the meeting, the two sides decided to finalise the price of LNG within three months. As a follow-up, Pakistani officials visited Qatar and held meetings there.

Price opposed

Private sector importers have already sought $18 per mmbtu for LNG supply, but this has invited a lot of criticism from different quarters. Even the Oil and Gas Regulatory Authority (Ogra) has opposed this high price and called for discussing the matter in the Economic Coordination Committee (ECC). Buyers of gas, including power companies, have also rejected such a high rate.

According to sources, the petroleum ministry has prepared a summary for the ECC which will discuss initiation of an integrated LNG import project. They say the government will furnish guarantees and receive gas from the parties qualified through a bidding process.

This is what private LNG importers had desired. Under this plan, imported LNG will be injected into pipelines of gas distributors – Sui Northern Gas Pipelines and Sui Southern Gas Company – and the government will take a weighted average price of gas.

As a result, the ministry official said, prices of domestic gas are expected to rise to $9 per mmbtu against existing $4.5 per mmbtu, which will affect all categories of consumers.

“The price of furnace oil is equal to $20 per mmbtu, therefore, LNG price of $18 per mmbtu is affordable for the industry,” an official said but added the industry, which was getting local gas at cheaper rates, was not ready to buy expensive LNG.

Published in The Express Tribune, April 4th, 2012.

Reader Comments (10)

  • Tariq
    Apr 4, 2012 - 7:33AM

    And gas costs $1.82 per MMBTU in the US. How can people live with these ridiculous prices, I would not pay more than the market price.

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  • Harry Stone
    Apr 4, 2012 - 9:36AM

    @Tariq:

    Because the US produces gas and has currently an over supply. You remember supply and demand. If PAK thinks these prices are too high then they should buy their gas from another source.

    The problem with the other price options that are used in the article is those sources do not exist other than on some drawing board. I think you also see the engery problem PAK faces when gas that cost $18 is sold for $9. The only organization that can do this is government. Government as it relates to energy and other sectors of the PAK economy is the real problem. The people of PAK will continue to suffer because you lack the institutions that promote good government.

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  • Umair
    Apr 4, 2012 - 11:08AM

    its not just the gas, but the bearing of cost for the infrastructure to get to that gas, too. If you buy a car from me and ask for delivery at your doorstep, I will charge you for it. If I have to build a custom carry vehicle to get it to you, that will be added to your cost in one way or another.
    Qatar is eyeing supplies to Japan and as the largest current supplier, they will dictate price. Better to look at smaller suppliers. Nevertheless, why the government has to enter into the domain of private sector business is still beyond me.

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  • Bigpicture
    Apr 4, 2012 - 12:53PM

    US gas prices reached the lowest level since early 2002, with Nymex February futures down 6.1 per cent to $2.322 per million British thermal units

    ref:
    http://www.ft.com/intl/cms/s/0/e9e51c7a-782f-11e1-bffc-00144feab49a.html#axzz1r3PojQWm

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  • shami
    Apr 4, 2012 - 2:36PM

    We are not USA with Shale reserves being exploited and have increased wellhead prices to 6-9 USD per mmbtu Therefore to expect HH price is utopia
    There is no cheap gas therefore in this region
    Japan buys spot at over USD per 16 mmbtu
    And someone please tell the good Doctor, Malaysia now is importing LNG so no point in seeking supplies from them
    Best approach is a combination of equity in LNG facilities and medium to LT supply deals

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  • Apr 4, 2012 - 2:59PM

    You have to factor in the cost to liquefy and transport the $2.3nn per MMBTU gas prices out of the United States. That eventual price, plus any premium will be around 5x-6x the original price.

    Moreover, the Asian market nowadays impose the highest cost of LNG, mainly driven by VALUE pricing, and not COST pricing. With the world’s hunger for energy, the only thing certain is that fuel prices will only continue to go up.

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  • Expat
    Apr 4, 2012 - 6:40PM

    So, this is interesting. The PAK govt is apparently at an impass with the Qataris. Instead of quietly trying to resolve this, they go for coffee with the Tribune. Apparently a confidentiality clause, probably the only thing they have agreed thus far, holds little sway in Pakistan. I wonder what the Qataris will make of that. I wonder what the worlds LNG suppliers will make of that.Recommend

  • Apr 4, 2012 - 8:42PM

    Pakistan has over 50 trillion cubic feet of shale gas, according to US Energy Information Admin. The US companies have the technology and the funds to extract it profitably.

    Under the new policy, exploration companies will be offered 40-50% higher prices for the extracted gas compared with the $4.26/Btu price announced in Exploration and Production Policy 2009. Companies which succeed in recovering gas from tight fields within two years will get 50% hike over the 2009 price and if it takes more time they will get only a 40% hike on the 2009 price. As an added incentive, the leases for the fields will now be for 40 years instead of 30 in the 2009 policy, the official said.

    Even with the higher prices for the tight gas offered to the exploration companies, it is estimated that Pakistan will have to pay a maximum of $6.50/Btu for the gas compared with $11-18/Btu for gas imports, according to a report by Platts.

    Pakistan should ask US to help extract shale gas in exchange for abandoning the Iran-Pakistan gas pipeline.

    http://www.riazhaq.com/2011/05/pakistans-vast-shale-gas-deposits.html

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  • Harry Stone
    Apr 4, 2012 - 10:16PM

    @Riaz Haq:
    I am sure the US would provide support to its strong ally PAK given how cooperative their relationship is.

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  • Apr 5, 2012 - 1:50AM

    @Harry Stone:

    Cooperation is never free as each nation pursues its own interests to serve its needs.
    Developing shale gas in Pakistan is a small price US should pay if it is serious about having Pakistan abandon Iran gas pipeline project, Eventually, it will be quite profitable for US petroleum companies while also helping Pakistan…the essence of win-win.

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