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September 12, 2019

SNGPL opposes bidding for more RLNG import


September 12, 2019

ISLAMABAD: The Sui Northern, which is the biggest stakeholder in LNG supply chain, has raised the red flag and opposed the government’s process for initiating the long-term tenders seeking import of 200 mmcfd LNG for next 10 years arguing that there is no firm additional demand in the system to absorb the said quantity of the imported product on constant basis.

More: OGRA cuts RLNG price for Sept

Based on the official document and talks on the issue with top ranking official of the gas company, the Sui Northern also agitated another but very vital issue saying the gas company currently imports the LNG under long-term agreement from Qatar on take or pay mode, but it has not agreement with its downstream consumers on the same take or pay mode. So, it is unable to have more intake of LNG in the system on perpetual basis. This assertion of SNGPL has really put the ongoing process to import more LNG under long-term agreement on jeopardy.

However, Spokesman for Petroleum Division Additional Secretary Sher Afgan was not available for his comments on the development as he is currently on official visit to Houston, US and Calgary, Canada for road shows of blocs in Pakistan for exploration and production activities in oil and gas sector.

However, the response from top management of the gas company came up on the scene at a time when Pakistan LNG Limited (PLL) got the bids for LNG import under long-term agreement and the process is underway for evaluation of technical bids, shows there is zero cohesion between the Sui Northern and the top mandarins of the Petroleum Division. “PLL should have consulted Sui Northern prior to initiating the process seeking LNG bids for 10 years for provision of 200 mmcfd,” the official opined.

However, the letter of Sui Northern written to DG LGs in Petroleum Division on August 30, 2019 of which copy is available with The News is the response given after 4 days of the letter of PLL dated August 26, 2019 seeking the endorsement of import of 200 mmcfd for 10 years.

The story of import of more LNG of 200 mmcd from Qatar started when Doha offered in month of June, 2019 another supply of 200 LNG at 11.25 percent of Brent, but the PTI government decided to first float the tenders for import of 200 mmcfd for 10 years to have reference price for product from Qatar. But the decision to float the LNG tender for 10 years factually irritated Doha.

At present, Doha is supplying 500 mmcfd to Pakistan under a 15-year agreement at 13.37 percent of Brent crude price. Under 15 year agreement, after 10 years, LNG price can be reviewed.

However, under new offer from Qatar for 200 mmcfd more supply to Pakistan, price review was to be allowed after 5 years’ time at a price, which is 20 percent below from the earlier price.

Qatar, which regulates the 75 percent of LNG market shared its dismay with authorities in Pakistan that companies that are to win the tenders will also purchase the product from Doha.

The relevant authorities included in the delegation of Emir of Qatar Sheikh Tamim bin Hamad Al-Thani during the two-day visit of Pakistan started from June 22, 2019 had expressed their resentment when they came to know that Pakistan has floated tenders for 10 years seeking provision of LNG from international companies after getting the lowest offer from Qatar.

However, the PTI government under the decision of federal cabinet continued to stick to its stance and the state-owned Pakistan LNG Limited (PLL) invited in July the bids from international suppliers for supply of LNG on ten-year term on a delivered ex-ship basis at Port Qasim as the country seeks consistent, reliable and cheap source of LNG, people familiar with the matter said.

The supplier will be required to provide two consignments of 140,000 cubic meters every month for ten years – a total of 240 consignments.

PLL got the bids and now government wants that a consultant of international repute should evaluate the technical bids and then open the financial bids. The Petroleum Division has sought 45 days more for evaluation from consultant. Now the PLL has asked SNGPL in its letter written on August 26 seeking the endorsement of import of 200 mmcfd under 10-year agreement.

According to the letter, the Sui Northern built its case on four agreements and expressed its inability to endorse the LNG tenders for more 200 mmcfd LNG import under 10-year agreement. The said gas company used its first argument of reduced LNG demand saying that existing RLNG terminals and RLNG-II pipeline remained underutilised during most of the month except peak summer months in the wake of reduced LNG appetite. The SNGPL in its letter responded with the help of graphs showing less demand of the RLNG in most of the months forced the LNG terminals and LNG II pipeline to get underutilised. It further says that RLNG has been imported primarily to cater to power sector. It also mentions in favour of its arguments that average consumption by power sector has been considerably low as against requirements advised by power sector time to time. The gas company also highlights saying that it has only firm LNG requirement of three gas power plants whereas the agreement with IPPs and other power plants are based on ‘as and when basis.’ And whereas RLNG agreement with upstream suppliers are on firm on take or pay basis and that’s why it is not in a position to confirm any additional firm LNG demand or enter into any further LNG supply agreement till the agreement on firm take or pay basis with downstream consumers are not executed on long term basis.

The Sui Northern in its second argument mentioned saying that another stumbling block is of RLNG pricing saying that RLNC price for downstream consumers is at very higher side due to which existing RLNG terminals are under-utilised during the period of lean demand from power sector. However, other sectors are using less RLNG because of its high cost, which is contributing massive hike in cost of production.

The gas company used third argument of additional demand saying that economic zones under CPEC are being established but their indicative demand may take several years to fully materialise. It also indicated that in industrial sector the usage of RLNG has decreased despite the fact that the government has given subsidy on RLNG to zero-rated industry.

The Sui Northern in the letter also used the fourth argument of third party access rules saying that different consortium are approaching it for allocating of pipeline capacity and importantly none of them is planning to explore new consumers and rather focusing on SNGPL consumers. Therefore even new consortium even avail pipeline capacity under TPA rules, it is most likely that existing consumers shall be switched over while the net consumption and demand remain the same.

Based on the said four arguments, SNGPL has come up with the stance that it is not possible for the gas company to confirm more LNG demand unless and until there is firm demand of additional gas on a constant basis at affordable prices.