LNG import project: ECC may approve import of 1 billion cubic feet per day

Will discuss Dutch firm 4Gas’ warning about filing case in court.

ISLAMABAD:

The Economic Coordination Committee (ECC) of the cabinet is likely to accord approval to a plan to import one billion cubic feet per day (bcfd) of liquefied natural gas (LNG) in an attempt to cope with the shortage of gas in the country, particularly in winter, officials say.

The plan comes amid a warning from Dutch firm 4Gas, which was awarded the Mashal LNG project but was later stalled, that it will approach international courts if the country makes a bid to initiate a new LNG import project.

However, the ECC, in its meeting scheduled for next week, is expected seek a briefing from Law and Justice Minister Farooq H Naek about repercussions of possible litigation by 4Gas, officials said. The company has already written a letter to ECC Chairman and Finance Minister Dr Abdul Hafeez Shaikh about its intention to move the international court.

According to government officials, it will be a long-term arrangement to overcome energy shortfall as the country will be facing shortage of four billion cubic feet per day (bcfd) of gas by 2020 despite gas supply from the Iran-Pakistan and Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipelines.

Sources said a high-level committee, in an effort to expedite LNG import, had convinced the Finance Division to extend sovereign guarantees for opening three-month revolving standby letters of credit. This was done on the insistence of Turkish firm Global Energy, which was selected and allowed import of LNG.

The committee, headed by Adviser to the Prime Minister on Petroleum and Natural Resources Dr Asim Hussain, was constituted by the ECC in August to examine the issue of sovereign guarantees for LNG importers.

According to the sources, Planning Commission Member Energy Shahid Sattar, in a meeting of the committee, had warned that the new initiative for LNG import would lead to litigation between the government and 4Gas.

They said the committee recommended import of LNG in different phases – 400 million cubic feet per day (mmcfd) in first phase, a similar quantity in second phase and 200 mmcfd on a fast track through direct negotiations with international sources, competitive bidding or spot purchase.

In an encouraging development, US government agency Overseas Private Investment Corporation (OPIC) has expressed interest in long-term LNG deals
for 15 years with a price review after 10 years. However, the ECC committee has proposed a 10-year deal with price review after every five years.

According to recommendations of the committee, the gas price will be determined on the basis of weighted average selling price for respective sectors. Cost of gas will not be passed on to other sector’s consumers.

Gas utility companies and power firms will open back-to-back letters of credit. Gas companies will open revolving standby letters of credit of up to three-month value of LNG while LNG users, mainly the power sector, will open LCs to back up the LCs of gas utility companies.

Published in The Express Tribune, September 15^th, 2012.