LNG supply: Pakistan, India in deadlock over transport fee
Pakistan and India have reached a deadlock in their talks over supply of liquefied natural gas as Delhi has sought transport charges of $4.5 per million British thermal units (mmbtu) for the supply of gas through a pipeline, officials say.
Representatives of the two countries are now expected to meet on December 11-12 in New Delhi to try and make some headway in the LNG project.
During talks held in Islamabad in October this year, the Indian team proposed a price of $21 per mmbtu for LNG supply including all charges, but Pakistan did not accept it. The price was higher than the $18 quoted by Qatar and much higher than the $11 proposed by Dutch firm 4Gas in January 2011 under the Mashal LNG project.
India has offered Pakistan export of 200 million cubic feet per day (mmcfd) of LNG for five years by laying a pipeline from Bhatinda to the Wagah border.
“The transport fee of $4.5 per mmbtu is even higher than the cost of gas being produced by exploration companies in Pakistan,” an official pointed out.
According to sources, during October talks, India offered two options for LNG supply. First, it asked Pakistan to pay $21 per mmbtu including the price and transport and re-gasification charges. Second, Pakistan should itself import LNG and pay re-gasification charges at the terminal and fee for the transport of gas through the pipeline.
“Now, Indian and Pakistani teams will try to remove their differences over the pricing issue,” a source said.
According to discussions between the two sides, India will lay a 60km pipeline from Bhatinda to Wagah border while Pakistan will construct its part of the pipeline stretching over 30 km to inject gas into the system of Sui Northern Gas Pipelines Limited (SNGPL).
A senior government official told The Express Tribune that initially Pakistan would import 200 mmcfd and later it could ask for more over the long run.
“For the time being, LNG import from India is the most viable option as there will be no capital cost involved and supply can start within months of a deal,” an official of the Ministry of Petroleum and Natural Resources said.
However, he said, if the government decided to import LNG through Karachi, the cost of just laying a pipeline from Karachi to Lahore will be $1.4 billion.
In Asia-Pacific countries including Pakistan, India and Japan, the price of LNG ranges between $16 and $17 per mmbtu, in the European market the price is between $9 and $9.5 and in the United States the price at Henry Hub stands sharply lower at $2.75 per unit due to discovery of large shale gas reserves.
“We should keep in mind that the US will become an exporter of LNG in 2016-17, therefore, we should not get locked in a long-term deal (with India),” an energy expert suggested.
He said India was importing LNG from Qatar at a lower price, but this agreement was going to expire. “India inked the LNG import deal with Qatar in 2004, but Pakistan tried and failed to book supplies from Qatar in 1991,” he said.
Published in The Express Tribune, December 6th, 2012.
COMMENTS (10)
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Duh Let the market place decide. It makes sense to have mulitple sources of a commodity. Pipeline is also an investment in infrastructure. The supply from India to Lahore and other part of Punjab is lot more secured and delivered at the door step is lot more important than fighting over nitty gritty. Also in a bigger picture economic inter dependence will save tax payers money on future toys for the army..
@mudassar: Only partially correct. India is not ready to tranist its gas through Pakistan on a long term basis. Since IPI pipeline requires a long term, deal for the large investments, there is no deal. However on the LNG side this is a short term deal and requires only small investment. pakistan and India can both call it off at any time.
Bottonline is niether country is willing to develop a structural reliance on the other. India has already set up its infrastructure so can offer a short term solution. pakistan is yet to do so
The key thing India offers is bankability or rather the lack of any need to make the project bankable. No large investments are required requiring private capital. Pakistan is constrained that no major international player is willing to invest the US$ 10 bln required for an upstream + LNG plant to supply Pakistan. Only short term cargoes are possible. Which requires readily avaiable infrastructure. Which India has.
India is not ready to pay a dollar in transit fees to Pakistan For IP gas pipeline, so how can we pay 4.5 $ to them, please i would say people to comment on this so that GOP lose money which is collected as tax from us
Another point The same qty of gas could be imported under the fast track project approved by ECC in Oct 2012 and for some odd reasons deferred by MP&NR Existing infrastructure with USD 30m investment can deliver 100-200 mmscfd to the network at around US11/12 per mmbtu GOP needs to look at macro options and not be limited by what India states It is good to have multiple sources but not at uneconomical value Doing terminal in Port Qasim will deliver 500 mmscfd at around 18 USD So why are we wasting time on Bhatinda!!!!!
Articles need to compare apples to apples It is incorrect that the Dutch firm had proposed $11 That was for a 5 year contract Therefore USD 11 price should be compared with current short term 5 year contracts/spot cargo rates The long term price proposal of the Dutch firm was on lines of rates offered by Qatar and higher than what current offer from Qatar is with MP&NR
India is in this business to make profits people, not for charity..
@ gtm: You are absolutely correct. India is an energy deficit country therefore no question of importing from India; and Pakistan should focus on long term solutions they might take some time but the pain of power cuts will go away;
The reason why policymakers and economists are disappointed with this PPP government is that it always looks for shortcut solutions;
That Turkish power ship is an example; similarly this Indian project is also a quick fix;
The real solutions need hard work and dedication; (IPI gas pipeline, Bhasha Dam, Qatar import, TAPI,Thar coal) all of these are difficult but long term solutions;
It seems to me that PPP policymakers didn't work hard in school therefore we are suffering now; build better schools and the next generation of policymakers might understand that patience and consistent hard work ultimately pays in the long run.
The problem with Pakistanis is that they think as to how much the other party is making profit, rather than how much they are benefiting.
India's biggest foreign exchange drain is due to petroleum/gas imports, including fertilizers, Next, the country suffers declining offshore gas reserves, and extreme shortage of LNG for domestic use. Third, the dangerous levels of air pollution demand that less coal and petroleum products be used for electricity generation, vehicles, and fertilizer plants/industries. How can a starving person feed another starving person? Where is the economic logic here, and can Pakistan depend for long on this unsustainable political arrangement crafted by the Manmohan Singh regime? It is sure to be axed if another government comes to power, or be challenged in some arbitration procedure. Indian Punjab itself is the victim of prolonged power cuts, and the absence of fuel for irrigation. The same is true, but only worse, for Rajasthan, and surrounding ARID states, that not only produce gas or oil, but also are the sites of major refineries!! There were laws forbidding the export of any petroleum products that were extracted from Indian soil. Ostensibly, the LNG to be exported will have to come from imported sources. How that makes sense is difficult to understand. One may imagine the many different political storms that will arise on several fronts should this agreement be finalized.