Energy deal: Moscow to lend $2b for LNG pipeline

Petroleum minister says Russia will start its first LNG exports in 2016 and has also offered to sell gas to Pakistan

ISLAMABAD:

Pakistan and Russia have finalised an agreement under which Moscow will lend Islamabad $2 billion to lay a pipeline that will transport liquefied natural gas (LNG) from Karachi to Lahore, Petroleum Minister Shahid Khaqan Abbasi says, adding that in return Russian companies will be awarded the contract to build the pipeline.

The formal agreement between the two sides is expected to be signed next month, following which Pakistan will also sign a commercial agreement with a Russian firm that Moscow will identify as its preferred contractor to build the 1,100-kilometre pipeline. According to the agreement, the contract will be awarded without any formal bidding process.

The financing for the LNG pipeline comes as a prelude to Russia’s offer to sell LNG to Pakistan. Russia is the second-largest producer of natural gas in the world, and is seeking to diversify its export markets after a spat last year with the European Union, its main buyer, over Ukraine.

“Pakistan and Russia have finalised an LNG pipeline deal in a recent meeting in Moscow and the two countries will sign a government-to-government basis deal next month,” Petroleum Minister Abbasi told The Express Tribune. “Russia will start its first LNG exports in 2016 and has also offered to sell gas to Pakistan.”

This is not Islamabad’s first major cooperation agreement with Moscow over infrastructure. The former Soviet Union had financed the construction of the state-owned Pakistan Steel Mills under a similar arrangement. The Soviets had also helped supply some of the oil drilling equipment for the state-owned Oil and Gas Development Company. Some of that equipment is in use till date.

Currently, Pakistan is working on two pipelines to transport re-gassified LNG from Karachi to the northern parts of the country. The first is a pipeline that will connect the Gwadar Port to the main natural gas pipeline hub in Nawabshah. The second will lay a direct pipeline from Karachi to Lahore.

The government has signed an initial deal with China to award a $3 billion LNG terminal and pipeline project to a Chinese contractor in a similar financing-for-guaranteed-contract arrangement.

Islamabad had initially offered Moscow and Beijing a similar arrangement for the Iran-Pakistan pipeline, but American and European sanctions against Tehran scuttled that project – at least for now.



An LNG import terminal, owned and operated by the Engro Corporation, an industrial conglomerate, is already up and running, though there is, as yet, no agreement to import natural gas from Qatar, the third-largest natural gas producer in the world and closest to Pakistan. There is also no infrastructure yet that would allow that natural gas to be transported upcountry.

“We are negotiating an LNG supply deal with Qatar which will be finalised soon,” Abbasi said.

Pakistan’s existing pipeline network has the capacity to transport 320 million cubic feet of gas per day (mmcfd) in re-gassified LNG. Consumption in Punjab and Khyber-Pakhtunkhwa, as well as upper Sindh, however, exceeds 3,000 mmcfd, which is why the new pipelines are badly needed.

In order to finance the payback of the loans needed to construct the pipelines, the Oil and Gas Regulatory Authority (Ogra) has allowed the state-owned gas utilities, Sui Northern Gas Pipelines (SNGP) and Sui Southern Gas Company (SSGC), to start charging consumers more for their gas bills every month. SNGP and SSGC are expected to invest $750 million and $300 million respectively to finance the LNG pipeline.


Published in The Express Tribune, April 18^th, 2015.