Pakistan, Qatar agree to review LNG deal

Companies of both sides serve price review notice on each other

ISLAMABAD:

Pakistan and Qatar have agreed to review a multimillion-dollar liquefied natural gas (LNG) supply contract amid a gas glut in the South Asian nation. The two sides have already signed a deal for diverting 24 LNG cargoes to other destinations in the current calendar year.

Sources told The Express Tribune that Pakistan State Oil (PSO) and Qatar had served LNG contract review notices. PSO is seeking the consent of the federal government to review the contract with QatarEnergy, a firm designated by Qatar. The two countries had entered into two LNG contracts that would expire in 2031.

PSO and QatarEnergy have a sale-purchase agreement for 15 years covering 2016 to 2031 and the other contract is for 10 years effective from 2021 to 2031.

The second LNG contract proved controversial, signed during the PTI government, as the country did not need more LNG, which led to a market glut. Both sale-purchase agreements (SPAs) had been struck under a government-to-government arrangement. As per these deals, PSO receives 6.75 million tonnes of LNG (108 cargoes) each year.

The agreements are on a "take-or-pay" basis. Both contracts have minimal flexibility for diversion – all surplus cargoes, if sold abroad, lead to a profit accruing to QatarEnergy while all loss is to be borne by PSO.

Owing to a declining demand from the power sector, LNG supply in Sui's system had become surplus. To cope with that, the government in 2023 authorised PSO to negotiate with QatarEnergy a reduction of two cargoes per month. As a result, 24 cargoes were reduced in the 2026 annual delivery plan. The Attorney General Office provided contractual guidance on the matter.

As per terms of both agreements, price review negotiations have been triggered, for which both parties are required to negotiate the price for the remaining period. QatarEnergy served a price review notice on PSO dated March 7, 2026 in respect of SPA-II and PSO served a price review notice on QatarEnergy dated March 19, 2026 in respect of SPA-I.

Under Clause 15.2 of SPA-I, either party may issue a price review notice to renegotiate the contract price, but not before the 10th anniversary of the start date, ie, March 1, 2026. Once the notice is issued, the parties are required to meet in good faith to discuss and agree on any price adjustment.

If agreed, the revised contract price will apply from the review date until the end of the supply period, with neither party entitled to issue a further notice. If no agreement is reached within six months of the notice, either party may terminate the agreement, with termination taking effect at the end of the contract year in which the notice is served.

This effectively gives Pakistan three options: negotiate a revised price; accept the existing price if negotiations fail; or terminate the agreement (though termination carries supply continuity risk) while attempting to seek greater flexibility in the contractual framework.

Under Clause 15.2 of SPA-II, either party may issue a price review notice between March 7 and 31, 2026, setting out the reasons why the contract price no longer reflects market conditions. At the review date, the parties are required to review and, if necessary, adjust the pricing formula so that the contract price falls within the range of prices under comparable contracts, regardless of source of supply, with price review benchmarked against comparable LNG contracts and reputable industry publications.

Unlike to the extent that the buyer takes any action, or omits to take any action of an administrative nature (other than those actions taken or omissions made in the course of the performance of and not in violation of, this agreement, and save to the extent to which the seller contributed to such action or omission), which results in the buyer being subjected or exposed to taxes imposed, levied or assessed in Qatar or by any Qatari competent authority, 16.1 shall not apply. In such a case, the parties will cooperate with a view to eliminating or diminishing the imposition, levying or assessment of such taxes on the buyer.