New LNG deals sought on take-or-pay basis

Terminal developers urge gas utilities to allocate pipeline capacity

Zafar Bhutta July 06, 2021


The Petroleum Division wants the new LNG terminal operators to sign agreements on a take-or-pay basis regarding allocation of pipeline capacity following the model of existing LNG terminals.

New LNG developers have been pressing the gas utilities to allocate pipeline capacity.

Earlier, the Cabinet Committee on Energy (CCOE) had decided to allocate pipeline capacity on three months basis till commercial operations of new LNG developers.

At that time, the Petroleum Division had sought to sign pipeline capacity agreement on take-or-pay basis and asked new LNG developers to give firm commitment regarding date of commercial operations of LNG terminal. However, they were not ready to give firm date of commercial operations. Therefore, CCOE had decided to allocate pipeline capacity on three months basis till the commercial operations of new LNG terminals.

However, following this, the inter-ministerial committee that meets on a weekly basis had pressed the gas utilities - Sui Northern Gas Pipelines (SNGPL) and Sui Southern Gas Company (SSGC), to allocate pipeline capacity, which is in violation of CCOE decision, officials said.

They said that under third party access rules, government cannot allocate pipeline capacity on preferential basis when there are other parties interested to import LNG.

The Petroleum Division wants the new LNG developers that they should sign agreement on take-or-pay basis that means that they would have to pay capacity payments if they are unable to utilise the capacity due to possible delay in operations of their LNG terminals.

Following pressure of high ups in government, SSGC had offered allocation of pipeline capacity of 44mmcfd to Energas, and 150mmcfd to Tabeer till Pakland.

SNGPL had offered to allocate 75-100mmcfd to each of the terminal developers beyond Pakland.

The inter-ministerial body had directed both terminal developers to hold a meeting with SNGPL to negotiate the deal. After negotiation SNGPL would send the agreed terms to the Oil and Gas Regulatory Authority (Ogra) for concurrence.

Allocation of SSGC tie-in point at Port Qasim

SSGC and Pakistan Steel Mills (PSM) are in negotiation to transfer 11 acres of land to clear payables of the former. SSGC had approached the government to facilitate the transfer of lands from PSM on an urgent basis to set off land lease value against payables to SSGC. SSGC is to receive dues from PSM on account of gas supply to it in the past.

During the previous government of Pakistan Muslim League-Nawaz (PML-N), SSGC had continued gas supply to PSM. However, it had disconnected supplies on the dispute of payments.

Now, these two LNG terminal operators are to be allocated land for tie-in point at Port Qasim but SSGC has been resisting allocating this land for these two LNG terminals. However, the inter-ministerial body had also pressed the gas utility to allocate this land for tie-in point at Port Qasim for these two LNG developers despite the fact these two LNG terminals were in private sector and government had not committed any guarantee.

Now, the inter-ministerial body had directed SSGC to utilise the existing piece of land available for construction of tie-in-points for both the terminal developers. The inter-ministerial body said that SSGC would provide the land to both the terminals developers on same terms and conditions, on which the previous two existing LNG terminals were granted.

The fire fighting station would also be built by SSGC on the new piece of land, on which negotiations with PSM were being held.

Energas shared their reluctance for the allocation of total 144mmcfd capacity being offered by SNGPL & SSGC, but is willing to discuss access agreement with SSGC and SNGPL in the best national interest as per Ogra determined capacity (currently 250-300mmscfd).

Published in The Express Tribune, July 6th, 2021.

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