A looming dispute between Pakistan LNG Limited (PLL) and Pakistan GasPort Consortium Limited (PGPCL) over the utilisation of excess capacity at an LNG terminal may be resolved as Pakistan’s caretaker government pledges to implement the agreement before September 17, 2023, potentially allowing the private sector to import LNG.
The agreement between PLL and PGPCL, signed on August 3, 2022, aimed to utilise the surplus capacity of an LNG terminal. PLL had an allocation of 600 million cubic feet per day (mmcfd) of terminal capacity owned by PGPCL, while the terminal’s total capacity is 750 mmcfd.
Under the agreement, PGPCL could use its surplus terminal capacity to import LNG, which was expected to reduce capacity charges from $0.4177 to $0.383647 per million British thermal units (mmbtu).
However, this agreement remained unimplemented during the tenure of the previous government, causing the capacity payments burden to shift onto consumers due to bureaucratic obstacles.
Reliable sources told The Express Tribune that PGPCL had warned the government of potential international arbitration and urged the implementation of the agreement.
In response, the caretaker government has requested time until September 17, 2023, to implement the agreement, potentially allowing the private sector to import LNG.
Previously, the government had terminated PGPCL’s contract, leading the consortium to file an international arbitration case, which the government lost.
The private sector has been struggling to import LNG since 2015, but state-run gas utilities had impeded private sector LNG import efforts.
Chairman of the Associated Group, a subsidiary of PGPCL, Iqbal Z Ahmed, expressed readiness to import one LNG cargo in October and indicated discussions with various LNG suppliers during a conference in Singapore. Speaking to The Express Tribune he emphasised the potential for cheaper LNG imports compared to prices set by the Oil and Gas Regulatory Authority (Ogra).
Ahmed stated, “We want to bring one LNG cargo every month to meet the demand of the private sector,” and added that private sector participation would benefit LNG consumers by reducing prices.
Addressing concerns about Letters of Credit (LCs), Ahmed confirmed that they would import LNG without government guarantees and manage LC issues for LNG imports.
He also highlighted potential customers, including the CNG industry, small-scale industries, APTAMA captive power plants, and K-Electric.
Regarding future LNG prices, Ahmed cited discussions with suppliers and experts, indicating expectations of stable or lower LNG prices over the next five years. Additionally, he projected a doubling of LNG capacity over the next seven years.
Ahmed emphasised the significant potential of the Pakistani gas supply market and its attractiveness to LNG suppliers and investors.
Experts believe that the entry of the private sector into the LNG market could encourage further investments and market expansion in Pakistan.
The government’s involvement in the LNG business had previously contributed to circular debt in Pakistan’s energy sector. While the power sector was a key factor, LNG had become a major contributor to the circular debt issue.
With the private sector’s entry into the LNG trade, the government may be relieved of circular debt concerns, paving the way for increased private sector participation in Pakistan’s energy mix.
Gas plays a crucial role in Pakistan's energy landscape, and LNG producers and suppliers are eager to support the country’s energy needs. However, government involvement in LNG trade had led to rising circular debt levels.
Ogra has already established a transportation tariff for LNG shippers to promote private sector participation and open up the LNG market.
Published in The Express Tribune, September 8th, 2023.