LNG deal with QatarGas saves Pakistan $76 million

LAHORE: Buying of liquefied natural gas (LNG) from state-owned QatarGas under the long-term agreement saved Pakistan $76 million in the last three months when compared with the current spot market rates, documents revealed on Tuesday.

Official documents, available with The News, showed that Pakistan saved almost Rs8 billion ($76 million) in December, January and February of the fiscal year of 2017/18 because of buying LNG under a 15-year agreement with Qatari government as compared with recent spot purchases.

Pakistan’s government-to-government LNG buying deal with Qatar has long been subject to criticism.

Industry officials termed the deal expensive as compared to spot market prices of LNG.

The data analysis of Pakistan LNG Limited’s (PLL) recently floated tenders seeking delivery during December 2017 and January and February 2018 under spot market rates, however, presented entirely different picture. PLL’s tenders fetched bid prices ranging from 13.98 to 16.89 percent of Brent, which is much higher than the prices agreed under the long-term sale-purchase agreement with QatarGas.

In December, an average saving per LNG cargo import stood at around $2.30 million. For six cargoes imported every month, under state-run Pakistan State Oil’s deal with QatarGas, total savings for December came around $13.8 million.

In January, average saving per cargo was $5.7 million and for six cargos aggregate savings amounted to $34 million. Likewise, average saving per LNG cargo stood at around $4.7 million for February, while total savings for six cargoes were $28 million. An official of the ministry of petroleum and natural resources said the global LNG market is “all about preferences and choices of LNG producers and traders.”

“LNG cargoes supplied on spot basis should not be compared with the cargoes bought under long term agreements,” the official added. “This is because of difference in market dynamics and factors that affect the prices like demand and supply situation, global weather condition, plants maintenance, geopolitical situation, freight elements and port charges.”

The official added that traders usually prefer spot supplies. Energy experts argued that Pakistan should not have entered into the agreement with Qatari government and instead should import LNG from spot market.

Ministry’s officials, however, said had the agreement with Qatar been not in place LNG imports could have been subject to price fluctuations, causing a substantial dent to precious foreign reserves.

Generally, the officials said countries initiate LNG imports with long term contracts and then build on the experience to buy on spot and for short term.

Officials said Pakistan saw significant price fluctuations on buying LNG on monthly basis. Sometimes, bidders did not bid, rendering terminal charges and causing uncertainty in supplies to power producers that use LNG to produce electricity for domestic consumption.

“Therefore, effort was diverted to five-year contracts and now the number of bidders significantly increased and the benefits surfaced in the two contracts awarded for the second LNG terminal,” an official said.

Pakistan’s second LNG terminal commenced operation in November last year to import 4.5 million tonnes per year of LNG. In 2015, the country saw its first terminal. The country’s LNG re-gasification capacity has increased to 1.2 billion cubic feet/day. The country is expected to be a market of 30 million tonnes per year of LNG in the next five years.