Govt makes surprise gas import move

Decides to buy LNG from Azerbaijan after putting off purchases from Qatar

ISLAMABAD:

Pakistan has decided to buy liquefied natural gas (LNG) from Azerbaijan next month after it deferred deliveries from Qatar and significantly reduced local gas exploration to clear the glut of imported gas.

Pakistan LNG Ltd (PLL), a state-owned company, has convened an emergency board meeting today (Sunday) for reviewing the overall gas demand and supply. The board is scheduled to meet again on Monday to approve the offer price of Azerbaijan, Petroleum Division sources told The Express Tribune.

Public utility Sui Northern Gas Pipelines Limited (SNGPL), which supplies gas to Punjab, Khyber-Pakhtunkhwa and Islamabad, has requested for import of at least one LNG cargo for January on the assumption of shortage of supplies.

The move surprises many as the government is asking local producers to reduce supplies, and has also deferred cheaper LNG deliveries from Qatar to 2026 due to the glut in the system.

The short-term supply contracts are often expensive than the long-term deal that Pakistan has signed with Qatar. However, the actual price will be known on Monday when the bid is opened.

The development came to light just two days after Petroleum Minister Dr Musadiq Malik announced that Pakistan had deferred five LNG cargoes from Qatar due to the glut in the market.

The sluggish large-scale manufacturing (LSM) growth and low electricity demand from the national grid has created the gas glut in Pakistan, which otherwise faces huge shortfalls throughout the year.

A senior official of the energy ministry said that according to the Annual Development Plan agreed between Qatar and Pakistan, there will be shortage of one cargo in January while surplus will be available from February onwards.

However, the government is also curbing local production to the extent of 250 to 300 million cubic feet per day (mmcfd) on the same premise that there is a surplus of imported gas.

LNG will be bought from the State Oil Company of Azerbaijan (SOCAR) and the government will open its bid on Monday evening, sources said.

Last month, the Economic Coordination Committee (ECC) approved a sale-purchase agreement for petroleum products between Pakistan State Oil (PSO) and SOCAR.

SNGPL has requested for the cargo to meet demand in January. The request has been communicated to SOCAR.

SOCAR has informed Pakistan that it intends to submit an offer for the supply of LNG cargo under the framework agreement on Monday, according to the Petroleum Division officials. The offer will be valid for two hours.

Some PLL board members have questioned the past track record of SOCAR in LNG supply to Pakistan and sought to discuss the matter in-house.

Due to LNG imports, Pakistan is already asking its local producers to curtail gas exploration. Only one producer curtailed 50 mmcfd in November and it is being asked to reduce production by 100 mmcfd.

"Importing LNG at a much higher price by asking the local producers to cut supplies requires explanation," said a PLL board member.

When contacted, Petroleum Minister Musadiq Malik said the total contained demand for gas in the SNGPL system in last January was 1,850 mmcfd and against that demand, the projected available gas would be 1,750 mmcfd next month even after fully utilising the local gas.

He said the projected shortfall was planned to be met through import from Azerbaijan. However, the minister clarified that the demand estimate of 1,850 mmcfd for next month was based on the timely onset of winter and the consumption of full 400 mmcfd by power plants.

On Wednesday, the minister said that Pakistan had deferred its LNG contract with Qatar for a year and it would now get LNG cargoes from Doha in 2026 instead of 2025. But he told The Express Tribune that Qatar did not offer any cargo for January.

Pakistan produces over a third of its electricity from natural gas but demand has declined by 8% primarily due to higher tariffs, curbing household consumption.

Pakistan imports about 1,150 mmcfd of LNG under long-term government-to-government agreements. The reduction in electricity demand has rendered 150 mmcfd of LNG in the SNGPL system surplus.

If SNGPL diverts supplies to residential consumers, it will result in higher tariffs. It is also against suspending supplies to the captive power plants under the IMF condition because of the same reasons.

SNGPL had said that in 2025 there would be 12 surplus cargoes without cutting gas supplies to the captive power plants.

The Inter-Governmental Agreement (IGA) between Pakistan and Azerbaijan had been signed in 2017 wherein SOCAR was nominated on behalf of the Azerbaijan Ministry of Energy and PSO was nominated on behalf of Pakistan. The sale-purchase agreement was approved last month.

According to the framework agreement, both countries will promote cooperation in the development of supply and trading opportunities for crude oil, oil products, LNG and liquefied petroleum gas (LPG), providing joint construction of terminals and storage for LNG, LPG and other hydrocarbons. Both countries will also encourage investors to work together for the promotion of projects of mutual interest including exploration and production in the petroleum sector.

PSO and SOCAR have agreed on an open credit limit of up to the value of one cargo.

The payment for each cargo delivered will be made by Pakistan without any discount, withholding, offset, abatement or counter claim within 30 days. Failure to pay cargo invoice will attract interest equal to SOFR plus 2% per annum from the sixth working day after the due date until the date on which payment is made in full, according to the agreement.