Energy trade: After scrapping of tender, LNG politics pick up pace

Speculations rife as government seems to have made up its mind to import gas from Qatar

Zafar Bhutta December 07, 2014


The politics related to liquefied natural gas (LNG) import have again intensified after Pakistan State Oil (PSO) cancelled an import tender in which top global companies like British Petroleum and Shell could have taken part.

Similarly, many tenders were scrapped in the past, but this time experts were hoping for clinching a deal following encouraging response from renowned companies. But the same old episode has been repeated again.

Punjab Chief Minister Shahbaz Sharif and Petroleum and Natural Resources Minister Shahid Khaqan Abbasi left for Qatar, which could be a major source of LNG supply, soon after the PSO tender was cancelled.

This has sparked speculation that the government has already planned to strike an import deal with Doha in a government-to-government contract through one of Prime Minister Nawaz Sharif’s close cronies, who has been residing in the Gulf Arab state for a long time.

During the previous government of Pakistan Peoples Party (PPP), some ministers had reportedly alleged that the man had blocked a gas deal between Pakistan and Qatar. Despite signing of a memorandum of understanding (MoU) between the two countries, Doha at that time did not push ahead with the gas export programme.

Speaking at a public rally, Awami Muslim League President Sheikh Rasheed Ahmed has also accused the PML-N government of favouring some blue-eyed boys in Qatar through a state-to-state LNG contract with Qatar Gas. He said the government was going to strike the LNG deal with Qatar through one of premier’s cronies, Saifur Rehman, who is residing in Doha.

He also pointed out that the government seemed to be in a hurry as it had assigned the special task of finalising an agreement to Pakistan’s ambassador-designate to Qatar.

These speculations seem to be spreading after the chief minister of Punjab went to Doha and met top officials. Then the minister of petroleum joined him.

This suggests two important things. First, the chief minister has a key role in reaching an LNG deal with Qatar and second, the government has made up its mind for an agreement with Qatar and PSO’s tender was mere eyewash.

However, with these developments, Pakistan is going to lose the opportunity of importing LNG at a competitive price. Now, the ball is in Doha’s court and it can demand a price of its choice.

During the previous PPP government, Qatar had revised downwards the LNG price offer to $17.437 per million British thermal units (mmbtu), a 0.5% discount over the previous price of $18.002. This would have led to savings of $1 billion over the 20-year lifetime of the project.

If all charges are included, LNG supplies from Qatar will cost $19.521 per mmbtu and Pakistan will have to spend $200 million on developing infrastructure for handling imports.

Another tender

Separately, in response to a tender floated by Sui Southern Gas Company (SSGC) for an LNG integrated project, Pakistan Gas Port had offered a bid of $17.7074 per mmbtu while Global Energy International quoted a price of $18.16 per mmbtu.

According to officials, if the government had awarded the contract to the lowest bidder, the price would have stood at $10 per mmbtu following a sharp fall in oil prices in the world market. These prices were even lower than the revised price quoted by Qatar.

The PPP government had also shelved the Mashal LNG import project for which the price was quoted at $11 per mmbtu.

Consultant’s view

Now, a consultant of the US Agency for International Development (USAID) has suggested that Pakistan should enter into a short-term LNG contract for two years because of declining gas prices. However, Qatar is seeking a 15-year contract.

According to the consultant, the declining trend in gas price will continue for the next six years and the LNG price is likely to come down to $6 per mmbtu.

Let’s see how the government responds to this suggestion. Whether it will go for reaping the benefits of tumbling gas prices for the sake of consumers or strike a long-term agreement at high prices to serve vested interests, only time will tell.

The writer is a staff correspondent

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

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Confused | 7 years ago | Reply

How many years have you been playing this same game? As I recall each time you go out into the market and request bids you get fewer and fewer players willing to bid on these contracts. . Seems like most of the promised solutions to the electricity shortage have one thing in common - lots of talk and not much action. Your conversion to LNG is missing supply and distribution. Your conversion to coal is missing supply, offloading/storage facilities, upgrades to railroads for distribution. Your additional nuclear and hydro plants are still in the "finding funds" stages and Sharif will be long gone before those ever come on line.

Haroon Rashid | 7 years ago | Reply

EU member Foreign Ministry for alternative sources of energy would now have to be explored including gas from CIS.

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