Clash: Govt seeks to import LNG without guarantees

Qatar insists Heads of Agreement is binding, Pakistan refuses to accept.

Zafar Bhutta June 13, 2014
The government has nominated Pakistan State Oil for negotiations with Qatar. PHOTO: FILE

ISLAMABAD: The government has insisted that it will like to strike a liquefied natural gas (LNG) supply deal with Qatar without promising sovereign guarantees as it will put multi-billion-dollar obligations on the country.

“Major challenges could be negotiating a contract with the consultants and arranging three-month letters of credit amounting to around $800 million,” a senior government official told The Express Tribune, adding the government would like to do it without sovereign guarantees.

Pakistan is exploring three options to bring LNG supplies including a state-to-state contract with Qatar, competitive bidding and spot purchase.

Though LNG would not be cheaper, the energy source was very critical in meeting the country’s needs since domestic production was insufficient to bridge the shortfall while gas pipeline projects had their own challenges, the official said.

The government has nominated Pakistan State Oil (PSO) for negotiations with Qatar as it is the only public sector concern that has a strong balance sheet and has vast experience of import and shipping of petroleum products.

“Since LNG will mainly replace liquid fuels in power plants, PSO can maintain its revenues by getting involved in LNG business,” the official remarked.

Back-to-back arrangements will be made with gas distributors – Sui Southern Gas Company and Sui Northern Gas Pipelines – to ensure timely and smooth conclusion of supply deals. PSO wants the utilities to cover financial obligations as it will be importing LNG for them.

PSO has received the Heads of Agreement (HOA) from Qatargas, which says that if the sale-purchase agreement is not concluded by a specified date, the HOA will be binding. HOA is a non-binding document outlining the main issues relevant to a tentative partnership agreement. It represents the first step on the path to a full legally binding agreement.

However, according to officials, the Ministry of Petroleum and Natural Resources has told PSO that such a provision is not acceptable. At the same time, the ministry has asked PSO to explore the spot market and start homework on the Master Sales Agreement for spot purchase.

Earlier, during negotiations with the previous PPP-led government, Doha had offered LNG 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 million British thermal units (mmbtu), a 0.5% discount over the previous rate of $18.002 for the 20-year lifetime of the project.

Published in The Express Tribune, June 14th, 2014.

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Muhammad Saim | 8 years ago | Reply

Imagine the situation its a loose_loose type of condition. At 17.437 $/MMBTU LNG is almost 4 times expensive than conventional natural gas produced in Pakistan which at max. is $ 4 /MMBTU. At $17 Shale/Tight gas production will also be at break even so that can also be explored instead of depending on LNG imports.

But the question is who will afford such a luxury, in an inward spiral consumers will collapse at 17.437 $ /MMBTU (consumer price will be even higher adding distribution costs), and hence the imports will not help in over all balance of energy.

unbelievable | 8 years ago | Reply

Who's going to commit to a 20 year multi Billion $ contract with Pakistan without a State guarantee? It's not an unreasonable request.

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