Ministry gives proposals for slashing LNG prices

Calls for consolidating all LNG terminal, supply contracts under one state entity

ISLAMABAD: The Petroleum Division has proposed that the government should consolidate all LNG terminal and LNG supply contracts in one state-owned entity in an attempt to eliminate multiple margins and extra port handling charges of state enterprises, a move that will slash prices of imported gas by 5% and make it economical for consumers.

At present, different entities are dealing with LNG imports and terminals. Pakistan State Oil (PSO), Sui Southern Gas Company (SSGC), Pakistan LNG Terminal Limited (PLTL) and Pakistan LNG Limited (PLL) are dealing with LNG terminals and imports, putting millions of rupees worth of burden on the consumers.

PSO is importing 600 million cubic feet of LNG per day (mmcfd) - 500 mmcfd from Qatar and 100 mmcfd through commodity trader Gunvor.

PLL, on the other hand, is dealing with contracts for import of 200 mmcfd of LNG, which include some spot cargoes, according to officials.

The high and low of LNG market

Separately, PLTL is dealing with one LNG terminal with dozens of staff members whereas SSGC is also working with an LNG terminal with staff of a few people.

According to officials, PSO is collecting a margin of 2.5% on the import of 600 mmcfd and PLL also receives the same margin. These companies also charge an additional amount on account of the service fee.

“If all contracts are consolidated and placed under one entity, the LNG price may come down by Rs30 per unit,” an official said, adding that PLL and PLTL should be shut down and LNG business should be transferred to PSO and SSGC to reduce cost, which had become uneconomical and no sector was ready to lift the gas.

International LNG prices have gone down to $2 per unit, the lowest in the past 10 years, but Pakistan consumers have been forced to pay over $10 per million British thermal units (mmbtu) due to agreements reached higher prices as well as the inclusion of administration cost and margins of PLL and PLTL.

LNG consumers are paying Rs9 million per ship on account of gas margins, terminal fee and LNG Service Agreement.

Sources told The Express Tribune that the charges could be reduced by 5% by consolidating and placing all agreements under one entity.

“Consolidating all contracts under one state entity and eliminating multiple margins and extra port handling charges can lower the cost by about 5%,” the official said.

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Other measures that the Petroleum Division proposed included short-term steps like buying cheaper spot cargoes to lower the overall cost.

The Petroleum Division also proposed that existing contracts should be optimised to reduce LNG cost as much as possible whereas the weighted average cost of gas was termed a long-term solution.

Officials said the current purchase of 800 mmcfd of LNG came from Qatar Petroleum, Eni and Gunvor. The remaining LNG is purchased on a spot basis, as needed. However, spot purchases need to be compliant with the Public Procurement Regulatory Authority (PPRA) rules of tendering.

Published in The Express Tribune, February 28^th, 2020.

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