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January 24, 2021

Govt contests Miftah’s claims about LNG terminals

Lahore

 
January 24, 2021

ISLAMABAD: The government Friday strongly contested the claims made by former minister Miftah Ismail about the LNG terminals and its procurement.

In his article headlined ‘The LNG Story’ published in The News recently, Miftah while comparing the spot price with term price of LNG stated that a 5-year bid for one cargo was used to set price for the Qatar contract.

In a rejoinder, the government said anybody familiar with the financial/commodity markets knew that it was wrong, as the two price determinants were volume and term. Therefore, the price of a 60-cargo deal over 5 years should not be used for a 900-cargo deal over 15 years.

Despite knowing the fact that the LNG market was going to be flooded with new LNG supplies after 2017-2018, the previous government still chose to enter into a 15-year agreement, it said.

Furthermore, former minister’s claim about merchant LNG terminals is also incorrect. The truth is that private entrants have been trying to set up a private LNG terminal on a merchant model since 2010.

ExxonMobil announced to set up a terminal in Feb 2017 and pulled out of the project in October 2017 because unlike oil business, sufficient volume of confirmed gas customers is required to underpin the investment which was not forthcoming.

It is also a known fact that the previous government set up LNG terminals at fixed payment (take or pay method) at around $0.53 million per day, thereby taking the entire financial risk. Since the previous government had declared LNG as petrol and price of LNG remained ring-fenced as a consequence, there are quite a few months when spot LNG was not required at all. Ordering LNG without confirmed demand create huge financial losses. Moreover, the article accused the current government of not buying cheaper LNG in summer. Without storage, cheaper LNG could not have been stored.

The former Minister must know the fact that the longer lead time for procurement of spot cargo does not guarantee a better price.

The cheapest cargo ($2.23/mmbtu) ever procured by Pakistan had 39 days between bid opening and cargo delivery, whereas the most expensive cargo ($10.27/mmbtu) ever procured had 71 days between bid opening and cargo delivery.

Although, there is never a fair comparison between spot price and long-term price, Pakistan has procured 52 spot cargoes during 2017 to 2020 at an average slope of 11.9063%, whereas 15-year G2G slope is 13.37%.

Presenting a narrative that India had already purchased all of its spot cargoes well before the winter season is also entirely misleading. The truth is due to Japan’s spree buying of spot cargoes, many Indian buyers have also faced the same situation as of Pakistan, as reported by S&P Global on January 13, 2021.

Despite these market conditions, the government managed to meet the requirement of LNG in December 2020 and January, 2021 at lowest prices of any winter period in Pakistan. Lastly, contrary to the facts, Dr. Miftah stated that this government produced more electricity on furnace oil instead of LNG.

The truth is only 3.6% & 5% power was generated by RFO in 2020 & 2019 respectively, whereas former government produced 28% electricity on RFO in 2017.