Muhammad Omar
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- Qatar Gas’ initial offer was $6.56 per mmbtu which was brought down by govt after negotiations
- Qatar Gas to pay $320,000 per LNG shipment while PSO would bear remaining $430,000 in port charges to Port Qasim Authority
Prime Minister Nawaz Sharif is set to ink a strategic long-term deal with Qatar for import of Liquefied Natural Gas (LNG) at an attractive price of $5.35 per mmbtu as compared to $6.56 per mmbtu which was agreed in year 2013, Pakistan Today has learnt.
Import of the Qatari LNG is likely to commence from March this year to December 2031.
An official document available with Pakistan Today reveals that Qatar Gas has asked the Pakistan State Oil (PSO) to provide standby letter of credit (SBLC) at 105 per cent of the value of four LNG cargoes during the first year and bear more than half of the port charges per shipment.
According to the document, Qatar Gas would pay the Port Qasim Authority’s port charges of $750,000 per shipment while it has asked that PSO pay the rest of $430,000 per shipment.
The Oil and Gas Regulatory Authority (OGRA) is yet to give its decision on the review petition filed by PSO against the provisional LNG price notified on October 7, 2015.
The long term LNG sales purchase agreement (SPA) is based on supplies under ‘take or pay’ arrangement. Under the payment terms, PSO would have to make payment 15 days after completion of unloading of the LNG. However, the PSO would have to produce a SBLC to Qatar Gas.
Under the deal, PSO has to provide Qatar Gas SBLC(s) at 105 per cent of the value of 4 LNG cargoes during first year which will be increased to the value of 6 LNG cargoes from the second year.
The SPA contract would be governed by the English Law. The agreement is expected to be signed in Doha, Qatar during the prime minister’s visit after necessary approval from PSO’s Board of Management.
According to documents, Qatar Gas has agreed to sign the SPA at per LNG cargo price of 13.37 per cent of Brent. The Brent value would be the average of three preceding months. Pakistan plans to import 2.25 million tonnes of LNG during 2016 and first quarter of 2017. From the second quarter of 2017 onwards to 2031, the country will import 3.75 million tonnes per annum.
“The price review can take place once after the 10th anniversary of the start date and if it fails, either party may terminate the SPA with effect from the end of the contract year in which the termination notice was served in which case the supply period can be as short as 11 years,” says the document.
The Long Term LNG SPA also provides for annual upward and downward flexibilities of up to 3 LNG cargoes per contract year. Downward flexibility can be accumulated for 2 contract years according to the document.
The document says that the procurement price from Qatar was the lowest compared to the prices it offered at various points in the past. The LNG price for the Mashal Project was $6.94 per mmbtu, Integrated Project $6.01 per mmbtu, while Qatar’s initial offer was $6.56 per mmbtu, which was brought down after negotiations.
The gas will also be cheaper compared with Iran Pakistan Pipeline (IP) and Turkmenistan-Afghanistan-Pakistan-India pipeline project. The IP border rate is $5.70 per mmbtu, while TAPI border Rate is $5.90 per mmbtu, while Qatar’s current rate is $5.35 per mmbtu. However, with the high transportation cost and the harsh strings attached with the deal, the gas will cost significantly more than gas through a pipeline. But the pipeline infrastructure is a ways off from being built.
Pakistan is currently facing a severe shortage of natural gas, both for its electricity generation and industrial use. The supply-demand gap is approximately 2 bcfd. The government is, therefore, pursuing the import of LNG to minimise the gap.
ECC in July 2013 authorised the Petroleum Ministry to negotiate with Qatar Gas on government-to-government basis for import of up to 500 mmcfd of LNG on DES basis. Subsequently the Petroleum Ministry nominated PSO and Qatar nominated Qatar Gas to negotiate the SPA.
The ECC, in August 2014, constituted LNG Price Negotiation Committee (PNC) comprising Petroleum secretary (Chairman), representatives of Finance Division, Water and Power and BOI. Managing Directors SNGPL, SSGCL, PSO and ISGSL (committee secretary) were made part of the committee.
The PNC held a series of meetings with Qatar Gas and finalised the price and key commercial terms of the SPA. The PNC report along with salient features of the Qatar Gas SPA were presented to the ECC in its meeting held on January 13 wherein the ECC considered and accorded in principle approval to the recommendations made by PNC and also allowed PSO as the buyer to execute the SPA with Qatar Gas as the seller pursuant to the agreement.
