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.
In a major setback to gas-starved consumers, Pakistan could not get even a single bid for three LNG (liquefied natural gas) cargoes meant for the first half of January and attracted the highest price for the second half of the month mainly because of delayed tenders amid rising international...
defence.pk
Let down by UAE firm, Pakistan seeks two LNG cargoes Khaleeq KianiPublished January 20, 2021Updated a day ago Facebook Count Twitter Share 99 The government has sought urgent tenders for liquefied natural gas (LNG) deliveries in third and fourth week of February. — Reuters/File ISLAMABAD...
defence.pk
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.
