This month Pakistan has signed a 15-year Liquefied Natural Gas (LNG) deal with Qatar. Under this deal, the country will buy gas at a price linked with three-month average of crude oil brent price in the international market. One mmbtu of LNG under this formula will cost 13.37 per cent of the average crude oil prices calculated over the preceding quarter. So, the prices will vary every three months according to the fluctuation in oil prices. If the price of oil goes up, the price of LNG sold by Qatar will increase accordingly and come down in case there is a fall in oil prices.
The deal is hailed by the government and has also been given a clean chit by the National Accountability Bureau (NAB) for apparently being transparent. The current prices worked out for the first shipment are quite close to those offered by Sui Northern Gas Pipelines Limited (SNGL) -- something that no doubt gives legitimacy to the deal. The industrial, Compressed Natural Gas (CNG) and fertiliser sectors are upbeat as they think they will be able to come over their energy woes to a great extent. Their point is that the additional injection of gas in the nation-wide distribution system will ease pressure on the authorities that have to revise load management plans many times a year. For example, in extreme cold, the supply is increased for consumption of domestic sector at the cost of industry and power sector.
Criticism however has come from certain quarters including the opposition parties that think such a long-term deal is not feasible for the country though it offers gains in the short term. Currently, they think, the prices are reasonable due to the historical fall in oil prices but what will happen if they rebound drastically. At the same time, they also question the hurry in which the government has signed the deal, especially at a time when Iran and Russia are also expected to offer LNG at lower rates.
Anis-ul-Haq, Secretary, All Pakistan Textile Mills Association (APTMA), tells TNS that the said LNG deal will cater mostly to the woes of Punjab. Sindh and KP, he says, have sufficient gas under the 18th amendment agreement and major constraints are faced by Punjab. He says luckily brent prices are down, meaning the LNG prices will be low and the industry will be able to reap its benefits. If other issues such as non-clearance of rebates, high-markup on loans, imposition of electricity surcharge and removal of gas infrastructure development cess (GIDC) etc are resolved, the textile industry will enter into revival mode, he adds. "In this case, it will be able to fully utilise its potential and also go for new investment initiatives that are on hold due to the prevailing energy crisis."
Regarding objection to linking LNG prices with that of oil, he says rebounding of oil prices to levels prevalent during the period between 2005 to 2008 is not expected according to different international research studies. Even then, he says, they have made calculations based on different projected crude oil prices to play safe.
At the price of $30 per barrel of crude oil, the price of LNG will be $4.01 per mmbtu, at $35 per barrel, the LNG price would be $4.68 per mmbtu, at $40 it will be $5.35 per mmbtu and at $50 it will be $6.69 per mmbtu. The cost of production of an electricity unit at the captive plants installed by textile units, at prices cited above, will be Rs 8.18, Rs 9.35, Rs 10.53 and Rs 12.87 respectively.
The opposition parties have questioned the government for not taking the parliament into confidence over the $16 billion LNG deal with Qatar. For example, PPP Leader Khurshid Shah says an agreement signed by their government for import of gas was transparent but it was not allowed to materialise by former chief justice Iftikhar Muhammad Chaudhry. But in this case, he says, there is nobody who the PML-N led government feels answerable to. The government did not feel the need to discuss the proposed deal in the parliament or take other parties on board, he adds.
PPP Senator Aitazaz Ahsan has come hard on the government and questioned whether international tenders were floated and was Qatar the only country from where LNG could be imported, especially when Iran and Russia are also into LNG business. These three countries could have been asked to quote competitive rates in this regard and the best option should have been availed. He also rejects the idea of signing a long term deal spanning 15 years, saying it would be difficult for following governments to honour the conditions agreed upon by the sitting regime. He is also clueless on how the oil prices could be predicted for 15 years.
The government plans to impose Rs 101 billion additional taxes on people to raise funds to lay new gas pipelines from Karachi to Lahore which is unjustifiable, says Islamabad-based energy expert Arshad H Abbasi. He says it is yet to be determined as to who will bill the $2.5 billion required to lay this pipeline. For the time being, he says, the existing infrastructure is being used but with the passage of time a new infrastructure will become imminent.
Abbasi has reservations regarding the price and says that the price of locally produced gas was recently increased from Rs488 per mmbtu to Rs600 per mmbtu just to give an impression that the imported gas cost is almost similar to the cost of locally produced one. He says earlier the government announced that the price of gas imported from Qatar will be the lowest in Asia but now it is saying it will be lower than that of gas purchased under TAPI and IP deals. Abbasi says Iran is planning to come in the international market in a big way after the removal of sanctions and can offer good rates. He also criticises the government for failing to get a better rate despite the fact that it is signing such a long-term deal ensuring sale of its product to Qatar.
The deal allows review of the terms and conditions including the pricing formula, but only after 10 years. In case there is no consensus during this review, Qatar will have the option to sell LNG under the original formula for one more year. The deal can be scrapped after completion of this year.
Ghayas Abdullah Piracha, Chairman, All Pakistan Compressed Natural Gas Association (APCNGA), tells TNS that LNG import from Qatar will help reduce the energy shortfall by 25 per cent and save the CNG sector that employs thousands of people and has invested billions. He says CNG is 30 per cent cheaper fuel as compared to petrol even at the existing rates and environment-friendly at the same time.
APTMA Secretary Anis-ul-Haq says despite being cost-effective LNG is quite environment-friendly and a far better choice than coal and furnace to produce electricity. The government plans to set up LNG-based power plants in Punjab to produce 3600 MW energy that will consume a major chunk of the gas imported from Qatar, he adds.