Pakistan may face another gas crisis

Pakistan may face a gas crisis during the next three years as it looks set to miss the opportunity of availing Floating Storage Regasification Unit (FSRU) with larger capacity to handle liquefied natural gas (LNG) imports.

The government has been unable to decide whether Engro should be allowed to utilise excess capacity on its own under third party access rules or Sui Southern Gas Company (SSGC) should exercise its first right of utilising excess capacity of FSRU Sequoia at Terminal-1 (EETL).

FSRU Sequoia has a capacity of 900 mmcfd whereas government has allocation of 600 mmcfd. Now, Engro wants either SSGC to utilise its first right or allow it to utilise it for private sector under third party access rules.

In this regard, Engro Elengy Terminal (EETL) CEO Yusuf Siddiqui sent a letter to Energy Minister Hammad Azhar and petroleum secretary saying that their ability to retain the FSRU Sequoia after September 3, 2021 will diminish. The old FSRU Exquisite will return in the second week of September 2021 and resume its operations under the existing structure of the LNG Service Agreement (LSA) if no solution is found.

Sources said that two LNG terminals will be operational after 2024 and therefore, Pakistan would be facing gas crisis due to limited capacity of LNG terminals in Pakistan.

He said that the petroleum secretary has led several meetings in August 2021 with SSGC, Sui Northern Gas Pipelines (SNGPL), Oil and Gas Regulatory Authority (Ogra), Pakistan LNG Limited (PLL), EETL and Pakistan GasPort Limited PGPL) leadership to find the best way to tap the existing LNG capacity at the two terminals.

EETL & Excelerate’s only meeting with the SSGC lawyers took place on August 31, 2021, which was the last day of deciding whether SSGC would like to keep Sequoia or bring back FSRU Exquisite.

EETL and its partners EE and Royal Vopak have diluted their terms to the following; firstly, EE has to deploy one of the FSRU in Brazil in a government terminal, two FSRUs cannot be kept encumbered for Pakistan. Hence, as a minimum and without terminating its option to buy the FSRU Exquisite, which was originally required to enable the option to buy the FSRU Sequoia, SSGC has to allow EE two-year waiver on its options rights on Exquisite while the rights are negotiated on Sequoia.

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Secondly, SSGC agrees that step in rights are not automatic and reasons for its activation are not going to happen. Even if they happen, SSGC has full rights under the LSA to take over the terminal. All rights in LSA remain, including SSGC’s right to option to buy the FSRU under an event of default which could not be cured.

“SSGC has the first right on the excess capacity and in the event mutual agreement in good faith is not reached in five months, only ask SSGC to either allow TPA to EETL or agree on take or pay with SSGC, as this is the eventual end goal to utilise the excess capacity,” he said.

He added that the Holland and US companies have taken unprecedented risk to undertake a transaction of more than $300 million without any downstream commitment or pipeline capacity allocation purely on the basis of their view on the Pakistani market and investment friendly policies of the government of Pakistan.

“EETL is taking a huge risk of committing cost of $100 million on Sequoia without any contract awarded and line of sight on the revenue. This plan requires Excelerate to reshuffle its fleet utilisation plan, take on increased risk to accommodate a short notice vessel swap and accept additional limitations on both the FSRU Sequoia and the FSRU Exquisite,” he said.

The CEO added that all parties are taking on additional risks for the benefit of Pakistan but the incremental risk being borne by SSGC is extremely remote and fully mitigated by existing contracts and LDs.

Published in The Express Tribune, September 3^rd, 2021.

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