Fee dispute delays start of second LNG terminal

PSO asked to divert its LNG cargo to the new terminal for kicking off work there

ISLAMABAD: A dispute between Sui Southern Gas Company (SSGC) and Fatima Fertilizer over fee payment for handling liquefied natural gas (LNG) imports has prompted Pakistan LNG Terminal Limited to weigh the option of diverting gas imports from Qatar to the second LNG terminal, an official says.

Pakistan State Oil (PSO) and Qatargas have an agreement on LNG supply, which is being handled by the first LNG terminal set up by Engro’s subsidiary Elengy Terminal Pakistan Limited at Port Qasim.

The second LNG terminal has also been built but Pakistan LNG Terminal has been unable to put in place a mechanism to start handling gas imports at the new facility.

According to the official, Fatima Fertilizer is ready to receive first LNG cargo at the new terminal, but a row over payment of tolling fee is a hurdle in its way.

Fatima Fertilizer has paid a levellised tariff of $0.66 per million British thermal units (mmbtu) but SSGC, which transmits LNG through its pipelines to the fertiliser company, asks it to pay $1.45 per mmbtu as agreed by the regulator. Owing to the disagreement, SSGC is not ready to allow Fatima Fertilizer to bring cargo at the second LNG terminal.

Now, Pakistan LNG Terminal is putting pressure on PSO to divert one LNG cargo to the second terminal in order to start the facility.

“It is the responsibility of Pakistan LNG Terminal to arrange cargo, which must be brought 10 days before the commercial operation date of the terminal,” the official said.

In a meeting held in the first week of current month, Pakistan LNG Terminal managing director said PSO had responded to the request, pointing out that the arrangement was offered in July 2017 but time shortage and other contractual obligations under the sale-purchase agreement forced them to refer the request to Qatargas for its consent.

PSO general manager added that Qatargas needed to undertake due diligence to assess compatibility and make risk analysis. He also spoke about new challenges like additional cost which should be addressed.

An SSGC representative argued that diversion of cargo would impact its obligations under the LNG supply agreement.

Pakistan LNG Terminal managing director countered that it was their responsibility to start cargo handling and processing and they would bear all costs.

However, the managing director of Sui Northern Gas Pipelines Limited (SNGPL) suggested that instead of diverting LNG cargo, Pakistan LNG Terminal may go for an independent arrangement for kicking off work at the terminal.

Pakistan LNG Terminal MD responded that they had worked out an alternative arrangement with PSO. In this regard, the company needs to sign an agreement with PSO, SNGPL and SSGC on the modalities for cargo handling.

SNGPL managing director sought to know outlines of the arrangement. He was told that executing agencies were responsible for working out and sharing outlines of the arrangement with Pakistan LNG Terminal.

Published in The Express Tribune, October 20^th, 2017.

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