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Pakistan to save $300mn annually from Qatar LNG deal: Imran Khan

Patriot forever

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Thanks for your assessment. I suppose this deal is in line with prices that Qatar has negotiated for other contracts recently, this is from Q3 20:



So based on my admittedly limited understanding and your comment on prevailing market conditions, our negotiated price more or less matches the above examples at 10.2% of Brent. So it's good, but perhaps not at any extra-ordinary discount? As for the previous deal, I'm unable to find any reliable estimate for the going price for 15 years at that time, nor am I able to wrap my head around the price difference then vs now and the difference in tenure.

@niaz @farok84 @Turingsage Gentlemen, if you'll indulge me for a moment with a question or two. Since these are long term contracts, how does the price (as a % of Brent) change with term of the contract (10yr vs 15yr etc.), is it higher for a longer contract due to more price risk in the long term? And since these prices are being quoted as a % of Brent, how much of a difference are we talking about in relative terms between a deal today at a price of 10.2% of Brent vs 13.37% of Brent at the start of 2016?

The second question is a little tricky, I mean to judge exactly how much better this deal is than what we had previously, while factoring for changes in energy prices between then and now, to judge if this deal is an example of better negotiation rather than just prevailing market conditions.

Many thanks.




Screenshot_20210227-014008.png
 

Patriot forever

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Hi,

That tweet part regarding port charges was massively confusing, atleast to me. It was giving impression that the new contract is FOB based, which indeed would have been an anti climax but like our older contracts this contract too is DES based.

Qatar has been quite generous to sweeten the deal by agreeing to pay for the port charges or atleast some part of it. It wouldn't make too much of a difference per mmbtu ($0.024/mmbtu if they pay full $80k/ cargo) but goes a long way towards building goodwill and trust.

By my calculations, the price for this contract is 23.7% cheaper and not 31% from PMLN's contract. Am I doing math wrong here?

Point 3 of tweet, talks about volume flexibility, this will come into play in 2024 when we start to import 48 cargoes/ year and fruits of it will be enjoyed by next government. For 2022 and 2023 we will still be relying on spot purchases to replenish our winter demand. We will still be importing 8 cargoes/ month till 2024.
Yes bro contract is DES based, FOB is not the norm for such small scale contracts and a small player like Pakistan. I think we can only assign the terminal?
The journalist I am quoting is the lead from brecorder (the best unbiased financial coverage).
The port charges are covered by Qatar, 80,000 per cargo that brings down the contract to roughly 10.13%.

The confusion I am having is we will be getting 24 cargoes/yr but not a fixed 2 cargo/ month rather flexible. We can order 3 or 4 in winter months when the prices are on a higher side and skip on a few in summer months. What is your input regarding this point?

You are the expert here bro. Kindly correct me if I am wrong.
 
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Norwegian

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Yes bro contract is DES based, FOB is not the norm for such small scale contracts and a small player like Pakistan.
The journalist I am quoting is the lead from brecorder (the best unbiased financial coverage).
The port charges are covered by Qatar, 80,000 per cargo that brings down the contract to roughly 10.13%.

The confusion I am having is we will be getting 24 cargoes/yr but not a fixed 2 cargo/ month rather flexible. We can order 3 or 4 in winter months when the prices are on a higher side and skip on a few in summer months. What is your input regarding this point?
Even Haramzada today praised PTI govt economic policies unlike that Khota Biryani Muftah:
 

Turingsage

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What is remarkable is how unremarkable this renegotiation is. The remarkable part is that while all countries in Asia are DELINKING LNG from Brent crude price Pakistan is seeking this linkage.
This is not good as Brent costs are climbing and LNG costs are falling.
Pakistan could end up paying more than others with delinked pricing.

Qatar is reluctantly agreeing the delink with its large customers because we realise what linkage will do to future pricing.
 

Norwegian

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+1

Patwaris do not understand rational obvious moral logic... They are cancer patients...
What is remarkable is how unremarkable this renegotiation is. The remarkable part is that while all countries in Asia are DELINKING LNG from Brent crude price Pakistan is seeking this linkage.
This is not good as Brent costs are climbing and LNG costs are falling.
Pakistan could end up paying more than others with delinked pricing.

Qatar is reluctantly agreeing the delink with its large customers because we realise what linkage will do to future pricing.
Stop your obsession with Pakistan, Modi
 

Patriot forever

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What is remarkable is how unremarkable this renegotiation is. The remarkable part is that while all countries in Asia are DELINKING LNG from Brent crude price Pakistan is seeking this linkage.
This is not good as Brent costs are climbing and LNG costs are falling.
Pakistan could end up paying more than others with delinked pricing.
Has anyone delinked their contract as of this date?
Asian LNG demand is expected to rise significantly in the coming years, the phenomenon is temporary.
Recently China and Korea have done contracts at 10.2%.
 

Patriot forever

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Even Haramzada today praised PTI govt economic policies unlike that Khota Biryani Muftah:
Mifta ismail is wrong on both counts.

First debt (I will explain his misplaced supposed claim in some other thread) and than he said nadeem babber was saying we don't need more long term cargoes. First of all he doesn't even know that Pakistan signed this contract as a replacement to the one that expired in Dec 2020. 2ndly nadeem babber was not against long term contract but the no negotiation option for 10 years in Plmn signed contract (for the new signed contract price can be negotiated after 4 years). I do not know how former finance minister is such oblivious to facts.
 

niaz

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Thanks for your assessment. I suppose this deal is in line with prices that Qatar has negotiated for other contracts recently, this is from Q3 20:



So based on my admittedly limited understanding and your comment on prevailing market conditions, our negotiated price more or less matches the above examples at 10.2% of Brent. So it's good, but perhaps not at any extra-ordinary discount? As for the previous deal, I'm unable to find any reliable estimate for the going price for 15 years at that time, nor am I able to wrap my head around the price difference then vs now and the difference in tenure.

@niaz @farok84 @Turingsage Gentlemen, if you'll indulge me for a moment with a question or two. Since these are long term contracts, how does the price (as a % of Brent) change with term of the contract (10yr vs 15yr etc.), is it higher for a longer contract due to more price risk in the long term? And since these prices are being quoted as a % of Brent, how much of a difference are we talking about in relative terms between a deal today at a price of 10.2% of Brent vs 13.37% of Brent at the start of 2016?

The second question is a little tricky, I mean to judge exactly how much better this deal is than what we had previously while factoring for changes in energy prices between then and now, to judge if this deal is an example of better negotiation rather than just prevailing market conditions.

Many thanks.

My understanding is that with the large-scale availability of LNG from coal-associated gas in Australia (Major LNG expansion took place between 2014 -2019- current production capacity about 88-million tons p.a.) It is difficult to see any scarcity of LNG in the next 5 to 10 years in the Far Eastern markets. This should keep Qatari LNG prices depressed in the near future. Similarly with the decrease of petrol/diesel as fuel in future cars; barring unforeseen catastrophic events; I don't foresee Brent crude prices getting to $100 per bbl again. Especially because if the prices of crude remain around the current level for long, Fracking would come back in a big way in the US depressing the crude price.

In my view, a long-term contract with a price-reopener clause is always better than a spot deal because it ensures the security of supply and cuts down the price risk for both parties.

Without having a crystal ball, the figure of $300-milion per annum being quoted in the press is as good a guess as any and I am inclined to accept it.
 

BATMAN

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using some common sense... there can arise a situation where gas prices may drop in future... my hunch says it will definitely happen at least once in 10 years time, which will definitely render Imran Khan's (unsubstantiated) calculation invalid. Opposite can also happen but chances are limited considering long term rate is always higher.

We have seen Shahid Khaqan Abbasi being trialed both in media and judiciary for making long term contract, because gas prices dropped in summer. I see Imran Khan in same position any time gas prices drop in future.

Having said that... gas demand in country may fluctuate depending on increase in local production... now Imran Khan has to make sure production of local gas is clamped, same as he ordered oil refineries to cut production, details are in inquiry commission report.
 
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farok84

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Since these are long term contracts, how does the price (as a % of Brent) change with term of the contract (10yr vs 15yr etc.), is it higher for a longer contract due to more price risk in the long term?
Hi,

The trend for the prices is to go down with longer term period, but it does not mean, we would have got a 9.5% price for a 15 yr contract today, we may have got a 10.1%. All term deals 10, 15 or 25 yr, will have a defined period for price renegotiation agreed upon by parties at the time of contract signage, that period can be 5 or 10 years depending on the contract. For this deal, it is 4 years, that is in 2026. For, PMLN's era contract, it was 10 years, that is 5 more years too many. They should have asked for renegotiation after every 5 years, same way as India had.

And since these prices are being quoted as a % of Brent, how much of a difference are we talking about in relative terms between a deal today at a price of 10.2% of Brent vs 13.37% of Brent at the start of 2016?
The deal should not have been signed for 13.37% in first place. This was the typical price window for 2014. Compare it with price of India (12.67%) or Bangladesh (12.65%), even they themselves signed contracts with Gunvor and ENI in late 2016 at 11.6247% for deliveries starting in 2017. Atleast, with today's deal, we can all agree the price is good and on par with market trends.

The second question is a little tricky, I mean to judge exactly how much better this deal is than what we had previously, while factoring for changes in energy prices between then and now, to judge if this deal is an example of better negotiation rather than just prevailing market conditions.
It's combination of both market conditions and better negotiations. It is not easy to negotiate with a supplier who knows you will not be getting a better price than his, and who can match and beat any other suppliers offer. Socar was the other interested supplier for this contract, (and personally I would be much happier if they have got this deal) but they simply could not keep up with Qatar and the way things are going on, no other can for a foreseeable future when it comes to South Asian markets.

I hope I was able to answer your queries.

If you are interested, you can find references to India/ Qatar contract, and ours Eni and Gunvor contracts in following posts.



The journalist I am quoting is the lead from brecorder (the best unbiased financial coverage).
The port charges are covered by Qatar, 80,000 per cargo that brings down the contract to roughly 10.13%.
Hi,

I believe this guy to be well informed, he was the first one to break news about this negotiation few months ago but if Nadeem Babar says the price to be 10.2%, I will believe that. As I said, if Qatar pays this port charges completely, it will come out to be $0.024/mmbtu and with brent at $65, the price will come down to 10.164%.

Nadeem Babar in his today's press conference said Petroleum Division will be organizing a special press conference for technical reporters, I hope someone asks him this question there.

The confusion I am having is we will be getting 24 cargoes/yr but not a fixed 2 cargo/ month rather flexible. We can order 3 or 4 in winter months when the prices are on a higher side and skip on a few in summer months. What is your input regarding this point?
The contract should have defined a 'Delivery Programme', which as per standard would have required us to provide Qatar a delivery schedule for every preceding year, 90 days before the end of each contract year. There is usually 10% cargo flexibility/ emergency supplies which both parties can avail every year, other than that every supplier will try to stick to the delivery programme, as they have to arrange for planned maintenance of LNG facilities and vessels. I am sure PMLN's contract will have the same thing. It's pretty standard. For years 2022 and 2023, we don't have much flexibility. We will be importing 8 cargoes/ month which we are still doing that is our baseline 800mmcfd supply, for anyone in Petroleum Div to skip a cargo in favor of winter will be a tall ask, things can go south very quickly. The full potential of this deal will come in play in 2024, and whoever will be in government will reap the benefits, when we will have extra 2 cargoes, at that time we can have flexibility to move some cargoes from summer months to winter months, and save on spot purchases but all that have to be carefully planned by Petroleum Division. I hope I have not over-complicated this.
 

Norwegian

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there can arise a situation where gas prices may drop in future... my hunch says it will definitely happen at least once in 10 years time, which will definitely render Imran Khan's (unsubstantiated) calculation invalid.
Don't use your common sense. Simple. Problem solved
 

Imad.Khan

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Most honorable Sir,

For the record, I have no political affiliations. In my opinion, Pakistan saw the best governance during the first 7 years of Ayub Khan (1958-65)and the first 3 years of Musharraf, that is before he was snared in by the Chaudhry brothers of Gujarat. Therefore I have no love for either PML-N or PPP gov't.

I was asked my opinion about an LNG contract which I gave to the best of my ability. I would gladly accept my culpability if you could point out where I have used baseless arguments or wrong facts, but kindly stick to the LNG contract because it has no relation to what the previous gov’ts may have done with the PK Rupee rate.

The emotional outburst by the PTI supporters against anyone who dares to criticize their superhero is however quite common. You are therefore welcome to get as mad as you wish. It would not change the LNG market or my views.
Its a trait of Pakistanis that they don't like to hear ill of their heros, including me. However its not limited to just PTI supporters.

I do wish to highlight that in your previous post you mentioned that the prices fell sharply because of covid. I would like to remind you that the contract was signed in 2016 while covid came 4 years later in 2020.
 
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I am glad that we got the best available deal.

But are we using the much maligned LNG terminal, that used to give sheikh Rasheed chuprasi sleepless nights..
Wasn't LNG the worst fuel and donkey used to cry himself to sleep pray tell.
 

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