Near-agreement: Pakistan, Qatar likely to finalise LNG price

Petroleum minister to lead delegation during talks in Doha next week.

ISLAMABAD:

Pakistan and Qatar are likely to agree on a price for supply of liquefied natural gas (LNG) and finalise a deal in upcoming talks slated for February 18 in Doha.

In this regard, a Pakistan delegation, led by Petroleum and Natural Resources Minister Shahid Khaqan Abbasi, will participate in the Pak-Qatar joint ministerial meeting, sources say.

On the sidelines, energy companies of the two countries are expected to sign the Head of Agreement, which has been drafted by the Qatari government.

“Gas price will also be on the agenda. Pakistan has reviewed the Head of Agreement and the two sides will discuss it,” an official said.

Qatar has also suggested that it can revise the price downward for LNG export in a proposed government-to-government arrangement that will help ease energy shortages in Pakistan.



In the Head of Agreement, Qatar insists that the LNG supply contract should be for 15 years extendable for another five years with no “price reopener”. It calls for slapping a penalty of $200 million for terminating the agreement at any stage. Furthermore, the LNG price should be fixed as a percentage of Brent crude oil.

Earlier, during negotiations with the previous PPP-led government, Doha had offered LNG export at a price equivalent to 14.7% of Brent crude oil when it was hovering around $110 per barrel in the international market.

Later, it pushed the price down to $17.437 per million British thermal units (mmbtu), a 0.5% discount over the previous rate of $18.002 for the 20-year lifetime of the project.

The price did not cover capital cost of an LNG terminal and its charges, import expenses, re-gasification, wastage and shipping costs. The additional costs would add about $2.084 per mmbtu to the quoted price.

According to a senior government official, Qatar is willing to make the first delivery of LNG by November this year but it has stopped short of giving firm assurances. However, it is flexible in finalising supply arrangements.

“Now, the government of Qatar has agreed to further slash the price to finalise the contract,” the official said.

LNG terminal

The board of directors of Sui Southern Gas Company has approved award of a contract to Engro Vopak Terminal Limited (EVTL) for setting up an LNG handling facility at its existing terminal at Port Qasim.

The case would be tabled before the Economic Coordination Committee (ECC) for formal approval of the contract, he said.

Earlier, Qatar had asked Pakistan to set up an LNG terminal before striking a supply deal. Now, as the terminal contract is going to be awarded, this will aid the upcoming talks.

Demand

On January 2, a delegation of Qatargas comprising Abdullah Ahmad Al Hussaini and Hamad Abdul Aziz Al Mahanadi held preliminary talks here with senior officials of the Ministry of Petroleum and Natural Resources, Inter-State Gas Systems, Sui Southern Gas Company and Pakistan State Oil.

Pakistan is eager to buy 200 million cubic feet of LNG per day (mmcfd), which will be re-gasified at the Port Qasim terminal and later injected into the system.

By 2015, the volume will be increased up to 400 mmcfd. The country is interested in importing two billion cubic feet per day in the next two-and-a-half years.

According to the Head of Agreement, Qatargas – which is considered world’s largest LNG company – will enter into an agreement for LNG supply with Pakistan State Oil. The two countries will also discuss possibilities of forming joint ventures between their state-owned companies like Oil and Gas Development Company (OGDC) and Pakistan Petroleum Limited (PPL).

Published in The Express Tribune, February 13^th, 2014.

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