ISLAMABAD: The government claimed on Wednesday that it had secured a favourable price of Liquefied Natural Gas (LNG) from Qatar for 15 years under an agreement signed in Doha. The price is lower than offered under comparable gas import options.

In a position paper, the government confirmed that the difference of port charges of $430,000 per ship would be paid by the Pakistan State Oil, instead of Qatargas, and would be recovered from consumers through its sale price.

The paper noted that the Qatar Liquefied Gas Company Limited 2 (QG2), which would be supplying LNG to PSO, would pay $320,000 per ship as port charges against actual charges of $750,000. The difference would be picked up by PSO and made part of sale price.

The PSO would be the LNG buyer delivered ex-ship (DES) at 13.37 per cent of Brent, while QG2 will be the seller from 2016 to 2031. It said that Qatargas had previously offered LNG DES price of $6.56 per MMBTU at $40 price of Brent which had now been reduced to $5.35 per MMBTU.

Difference of port charges of $430,000 per ship would be recovered from consumers

Under the agreement, the LNG price with QG2 could be reviewed once, after the 10th anniversary of the start date. In case of failure of price review, either party could terminate the agreement with effect from the end of the contract year in which the termination notice was served. Simply put, the minimum supply period under the agreement would not be less than 11 years.

The price agreed for each LNG cargo discharged in a particular month is 13.37pc of preceding three month average of Brent value. Annual contract LNG quantity for first year (2016) would be prorate of 2.25m tons and first quarter of 2017 after which the quantity would be increased to 3.75m tons per annum beginning second quarter of 2017.

The long-term agreement also provides for annual upward and downward flexibilities of up to three LNG cargoes per contract year. Downward flexibility can be accumulated for two contract years. Under the ‘take or pay’ clause of the agreement, Pakistan is required to take full contracted LNG or else pay full cost even if it fails to receive LNG quantities for any reason. The PSO would be required to make full payment 15 days after the completion of LNG unloading.

In order to ensure that the payment is made within 15 days, the PSO would provide Standby Letter of Credit to Qatargas at 105pc of the value of four LNG cargoes during the first year. From second year onwards, the PSO would provide the letter of credit of 105pc of the value of six cargoes.

The government said it had also carried out a price comparison of all long-term gas import options, including previous LNG import attempts at indicative Brent price of $40 per barrel, suggesting that LNG import from Qatar would be the lowest.

It said the delivery ex-ship price of LNG under the Mashal Project terminated following court disputes at $40 per barrel worked out at $6.94 per MMBTU.

The price of integrated LNG import project at $40 Brent was calculated at $6.01 per MMBTU.

Qatar had last offered $6.56 per MMBTU at Brent price of $40 per barrel while the current price is $5.35.

Compared with the natural gas import options, the government claimed the delivery price at border under the Iran-Pakistan gas pipeline was $5.70 per MMBTU at $40 Brent price and that of Turkmenistan-Afghanistan-Pakistan-India was $5.90.

The Economic Coordination Committee of the cabinet authorised the petroleum ministry in July 2013 to negotiate import of LNG up to 500 mmcfd on DES basis with Qatargas.

In August 2014, the ECC constituted a committee headed by the petroleum secretary and comprising representatives of the Finance Division, Water and Power and Board of Investment and managing directors of SNGPL, SSGCL, PSO and ISGSL to negotiate the price. But managing directors of the SNGPL and SSGCL were not part of negotiations.

The commercial consultation for LNG procurement was provided by Fact Global Energy and legal consultation by Watson Farley & Williams LLP, an English law firm. Both consultancy firms were engaged by USAID.

Published in Dawn, February 11th, 2016