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Govt to set up own company for LNG terminal

Shahid Khaqan says summary to be moved to ECC for approval; Qatar deal to benefit Pakistan because of stability in supply, short distance and availability

By Israr Khan
September 16, 2015
ISLAMABAD: Owing to Pakistan’s increased energy demand, Islamabad is gradually increasing its reliance on the imported Liquefied Natural Gas (LNG) and is going to establish a 100 percent state-owned company to undertake construction of LNG Terminal-II project after an attempt of building it through a private company has already failed.
The government rejected a private company, which was the lowest bidder, as some of its documents were found dubious. The company went in litigation; however, the Sindh High court (SHC) upheld the government’s decision.
“The government has not shelved the project and will form a state-owned company. A summary in this regard will be moved to the Economic Coordination Committee [ECC] for approval,” said federal Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi while briefing the media on the LNG import.
Pakistani economy has been facing a severe energy crisis. Its local output of natural gas is around 4 billion cubic feet a day, while the demand is around 6-6.5 billion cubic feet.
In order to plug the gap to run factories, feed houses and generate energy, the government has worked to sort the issue out on war footing.
Briefing journalists on the LNG import in Pakistan and its progress, Shahid Khaqan Abbasi said around 600 megawatt RLNG–based electricity had been added to the national grid, while RLNG-based power projects of 3,600 megawatts were in advanced stages and will be able to start adding energy to the system by summer 2017.
It is the lowest cost energy and its efficiency will be 62.5 percent while in Muzaffargarh and Jamshoro it is around 30 percent. The government gave the contract to Engro Corporation after a bidding process to build an LNG terminal-I at Port Qasim.
The company completed the project within 11 months after spending $150 million as capital cost. It also took a floating storage re-gasification unit (FSRU) on lease having the capacity to deliver 600 million cubic feet/day natural gas directly to Sui Southern Gas Company’s natural gas pipeline system.
Our gas fields are depleting and in future even in housing you will need imported gas. Only domestic based gas can compete with the LNG. On annual basis, LNG is cheaper than Iran and TAPI gas. In the face of depleting natural gas reserves, the only cheaper alternative is LNG and with its use the country could save about Rs100 billion a year due to price differential,” said the minister.
Almost all the issues creating hurdles in the agreement for the LNG agreement have been resolved.
“Only the issues related to price mechanisms and Letter of Credit have yet to be resolved but we are hopeful of sorting it out by the first week of October,” the minister added.
“In the existing available energy resources nothing is compatible with the LNG; even it is compatible with the new prices of the new discovery of gas,” the minister maintained.
Two years ago the industries were at a standstill, as there was not enough gas available for the fertilizer sector, power plants and other industries. Due to the import of LNG majority of fertilizer units and power have started working.
We have government to government agreement with the Qatar government, as both the PSO and Qatar Gas are government-owned and at the moment Pakistan is enjoying the lowest rate in the region, which is used in electricity generation and also in CNG stations and others.
Since March 26, 2015 when the LNG import started into the country, 10 ships have been imported so far and till March 26, 2016, we have to bring 15 more ships under the contract. However, if we increase the number of ships the tolling charges will reduce, so we target to import around five more ships.
For the last one and a half years, we are negotiation a sale-purchase agreement [SPA] with the Qatar government, but we await the Oil and Gas Regulatory Authority (Ogra)’s decision of determination of tolling of the Sui Northern Gas Pipeline Ltd (SNGPL) and Sui Southern Gas Company Limited (SSGCL). Both the gas utilities are demanding 52 cents and 28 cent/mmbtu respectively which is not justified.
In entire world, the LNG purchases are always negotiable and Pakistan can also negotiate the lower price of LNG; however the PPRA rules have tied our hands.
If you are allowed to participate and play in the market, you can get good price,” the minister claimed. The prices of LNG ranges from 11.2 to 17.2 percent of Brent and Pakistan can get a deal up to 13.5 percent of Brent.”
However, the minister said the main thing in LNG business is not the price you get, but the terms of agreement benefits you.
“There are some companies which have offered the prices of 8 percent of the Brent but there is no guarantee of supply, which is the important thing in the LNG business,” the minister added.
The foremost thing in LNG deal with Qatar is its stability in supply, short distance and availability, he maintained.