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February 27, 2021

Cheaper LNG deal signed with Qatar

Top Story

February 27, 2021


ISLAMABAD: Pakistan has signed a new LNG deal for 10 years at 10.20 percent of Brent with price opening clause after four years. Under the contract, Qatar will provide Pakistan three million tons LNG for 10 years.

The new accord on LNG with Qatar was done under GtoG (government-to-government) mode which will be effective from January 1, 2022 and to this effect a signing ceremony was held here on Friday at the PM’s House.

Prime Minister Imran Khan also witnessed the signing of the contract, which will help save $317 million a year and $3 billion in 10 years’ time if compared with the deal done by the PML-N government with Qatar at 13.37 percent of Brent for 15 years with price opening provision after 10 years. There is a provision in the agreement under which if Pakistan wants additional cargoes in the winter season in the current calendar year, it can import at a price of 10.20 percent of Brent.

Minister for Energy Omar Ayub Khan and Qatar’s Energy Minister Saad Sherida al-Kaabi inked the agreement. Pakistan military leadership has played a pivotal role in getting the deal done and this fact has been disclosed in an official document which clearly says the origin of this recent offer from Qatar has stemmed from joint efforts of top-level political and military leadership of Pakistan.

The official document, available with The News, unfolded that the process of talks with Qatar started when Prime Minister Imran Khan on February 13, 2019 gave go ahead to explore the possibility of contracting an additional 200mmcfd.

“Secretary petroleum and SAPM for Petroleum (then Chairman Energy Task Force) visited Qatar and submitted a report dated March 15, 2019 to the Prime Minister’s Office indicating the willingness of QatarGas to provide additional LNG volumes to Pakistan,” says the document.

Nadeem Babar, Special Assistant to PM, however, said in a presser that that the negotiations with Qatar authorities were underway for the last two years. He said that Imran Khan held meetings with Amir-e-Qatar for two times and in the said meetings he himself was present. But he did not mention the role of military leadership. However, when a journalist asked if there is a role of military leadership in the deal he just said that one shouldn’t be bothered about it, rather should see the results, but later said after a pause: “Yes, it is the result of combined efforts.”

The SAPM on petroleum said Pakistan has managed the deal at 10.20 percent of Brent which is the lowest publicly disclosed price. Under the new agreement, the costly two cargoes available at 13.37 percent of Brent will be replaced with new vessels from Qatar at 10.20 percent of Brent and in 2023 one more cargo will be added per month, and in 2024 the fourth one LNG vessel will be added per month and this is how in three years time the number of LNG cargoes will increase up to four per month.

Under earlier agreement with PML-N government, he said, Pakistan was to open L/C availing $175 million a year but under the new deal the country will now spend $85 billion on L/C per annum.

According to the document, the term contract with Gunvor-LNG trading Company had expired with PSO in December 2020 under which it was providing one cargo at 13.37 percent of Brent. In place of that LNG vessel, Pakistan will now import one cargo from Qatar at 10.2 percent of Brent. Gunvor’s second term contract with Pakistan LNG Limited (PLL) is also going to expire in July 2022. So from August, 2022, another cargo from Qatar will start landing in Pakistan waters. Keeping in view the dwindling local gas reserves and increase in demand of gas, from 2024, four cargoes per month will be imported.

Nadeem Babar said that new LNG cargoes will be cheaper by 31 percent if compared to the costly LNG cargoes available at 13.37 percent of Brent. He said that average price of spot cargoes imported so far stands at 11.90 percent of Brent and under the new government to government deal, Pakistan managed 15-16 percent more less price if compared with average price of spot cargoes. “This will ensure stability, security and reduction in total basket price of LNG,” the SAPM said.

Meanwhile, Prime Minister Imran Khan said at the groundbreaking ceremony of the Central Business District ceremony in Lahore that his government had been trying to negotiate this deal for the past one year.

"When a difficult time comes upon the nation, a country has to think of 'out-of-the-box' solutions," he said. "Pakistan went through a decade of darkness," he added. The prime minister had said Pakistan was facing a fiscal deficit due to which it was forced to take foreign loans due to which the country's reserves declined and its currency lost its worth.

"These problems were inherited by this government," he said, adding that the government cannot solve this problem until and unless it generates wealth. Touching upon the LNG deal with Qatar, the prime minister said that he was proud to announce that Pakistan will save $300m each year as a result of the deal. "And in 10 years' time, Pakistan will save $3b," he said.

However, Miftah Ismail, former finance minister and leader of PML-N in a TV interview said: “Firstly, Nadeem Babar didn’t say that Pakistan doesn’t need LNG cargoes in summer. Now he has bought two to replace one. So one extra plus he will add two more in two years. So why was he saying the opposite just a few weeks back; Secondly, the PTI said Pakistan should not have gone for a long-term deal. But now it has. Was PML-N right then to do so?; Thirdly, Nadeem said the illogical slope didn’t matter, total price does. But now he has changed his tune. Why?; Fourthly, when PML-N did the long-term deal at 13.37 percent we were buying spot cargoes at 14 percent.

So our deal was giving us cheaper cargoes. Now he’s buying at higher than our spot prices. Why? Is there any corruption? Fifthly, PML-N did a tender for five years to do ‘price discovery’, got a price from Gunver and then awarded that tender to Qatar. But the PTI has done no price discovery, so we didn’t know whether this price is high or low. And sixthly, if tomorrow the international price goes down, will we be right to blame Imran Khan and Nadeem Babar for corruption.”