Quest for competitive price: Talks break off with Qatar over LNG import

Govt waits to set benchmark before going ahead with negotiations.

Zafar Bhutta June 07, 2014
With the arrival of gas, the government will seek to replace furnace oil with LNG in power plants. PHOTO: FILE


Pakistan has stopped negotiations with Qatar over the import price of liquefied natural gas (LNG) until the time potential suppliers participating in an LNG tender offer a competitive price, officials say.

The government has floated a tender, seeking bids from international LNG suppliers following the award of terminal construction contract to Elengy Terminal Pakistan Limited. Separately, the government is negotiating a state-to-state LNG supply deal with Doha.

“We will resume talks with Qatar on LNG import after receiving a competitive price through bids,” an official said. “We will set the price offered by the potential supplier as a benchmark in negotiations with Qatar.”

During talks held in March in Karachi, a Qatari team gave a firm commitment that Doha would start exporting 200 million cubic feet of LNG per day (mmcfd) to Pakistan next year – a promise that will end years of efforts to bring vital gas supplies to ease energy shortages.

According to officials, the government has planned to import LNG through three sources including supplies from Qatar in a state-to-state agreement, international bidding and spot purchases.

It plans to import 200 mmcfd in the initial phase, which will be increased to 400 mmcfd later. In a couple of years, supplies will be enhanced to two billion cubic feet per day.

With the arrival of gas, officials say, the government will seek to replace furnace oil with LNG in power plants. At present, furnace oil cost stands at $18 to $20 when calculated in terms of per million British thermal units (mmbtu).

Pakistan could afford to purchase LNG at $15 to $16 per mmbtu if it replaced furnace oil, officials said, adding thermal power plants were consuming furnace oil to meet 50% of their fuel needs, leading to a sharp increase in the cost of power production.

Consumption of LNG in power plants will not only reduce the cost of power generation, but will also lead to production of clean energy.

The Qatari team, during its visit, also discussed a proposed Heads of Agreement – a non-binding document outlining main issues of a partnership agreement – with officials of Pakistan State Oil, Sui Southern Gas Company and Inter-state Gas Systems.

The two sides discussed different clauses of the agreement such as volume of LNG, specification of gas, guarantees and timeframe for first supplies. However, gas price did not come up for discussion.

“The price is the last point that will be taken up after inking the Heads of Agreement. We have not finalised the agreement, therefore, the price is not quoted,” a senior official said.

Officials pointed out that Qatar sought to include a clause that would allow it to slap penalty worth $200 million if Pakistan terminated the supply contract. However, Islamabad fiercely opposed the proposal and did not accept it.

In the agreement, Qatar insists that the LNG supply contract should be for 15 years extendable for another five years with no “price reopener”. It wants the LNG price fixed as a percentage of Brent crude oil.

Earlier, during negotiations with the previous PPP-led government, Doha had offered LNG export at a price equivalent to 14.7% of Brent crude oil when it was hovering around $110 per barrel in the international market.

Later, it pushed the price down to $17.437 per mmbtu, a 0.5% discount over the previous rate of $18.002 for the 20-year lifetime of the project.

According to an assessment of the Ministry of Petroleum, gas production will drop from the current 4.47 billion cubic feet per day (bcfd) to 2.53 bcfd in 2019-20 if additional supplies are not brought.

Gas shortfall stood at 1.88 bcfd in 2013-14, which would jump to 4.79 bcfd in 2019-20.

Published in The Express Tribune, June 8th, 2014.

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very sad | 8 years ago | Reply

Yeah right. The talks were all about price. So that is not an excuse. The effects of $1.5 billion gift are pouring in?

ma | 8 years ago | Reply

I come here is come to express Pakistan higher than mountain to China sea deep kindness. Expect before 80-90's, the United States replaced amastermind,Start adopting soft means to carry on inner part to divide to China, The United States publicly puts forward to request in the world to impose sanction against China in the United Nations General Assembly. It is the watershed that Pakistan makes a choice at this time.Basis ex-service central intelligence agency officials so the tower benefit recollection say:The United States ever with helped large numbers of excess militaries supplies, part of new fighter jet, and was no less than every year helping of USD 5,000,000, requested to Pakistan leave China on one's own initiative stood "democracy and freedom" part.When the United Nations General Assembly decision carries out to impose sanction against sex vote to China, Pakistan and suddenly stand up(although is small and weak remain Keng Qiang) loudly answer:"We determinedly objection sanctions China, this is the interference national sovereignty that has no reason", This is the first negative vote that the United Nations General Assembly imposes sanction against Chinese problem proposal.Pakistan welcomed the military, economy and diplomacy of American storm sort to impose sanction against as a result.China at that time is still very poor, can not give everything you. But you for the sake of help China Be not afraid of is made reprisals by the United States. All Chinese are moved, we remember your kindnesses forever. Today's China is getting more wealthy, Be getting stronger, we definitely take you to head for prosperity rich and strong.

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