Govt dream to utilise excess capacity of new FSRU in tatters

ISLAMABAD: The PTI government’s dream to utilise the excess capacity of 150mmcfd on Engro LNG terminal in winter season is in tatters as the Engro Elengy Terminal Limited (EEPTL) here on Thursday told the Petroleum Division in plain words if the government wants to utilize the excess capacity of 150mmcfd of the existing state-of-the-art FSRU Sequoia, then Sui Southern Gas Company (SSGC) will have to extend till today (Friday) the two-year waiver on its buy option rights over FSRU Exquisite.

In a letter, EETPL CEO Yusuf Siddiqui wrote on Thursday to Energy Minister Hammad Azhar, Secretary Petroleum Dr Arhsad Mehmood and MD SSGC Imran Maniar, that till today if SSGC does not extend the two-year waiver on buy-in option right over FSRU Exquisite, it is not possible to retain the new FSRU Sequoia in Pakistan.

Sequoia, having storage capacity of 900mmcfd LNG and regasification ability of 780mmcfd, cannot be retained if Exquisite is not given two years waiver from buy option rights which the SSGC has on old FSRU that went to Qatar for dry docking on June 28-29. Under the LNG Service Agreement (LSA), Sui Southern has the step-in and buyout rights over FSRU Exquisite and in case Engro and Excelerate Energy default, then SSGC has the right to buy FSRU Exquisite. Unless SSGC gives the waiver till today (Friday), it is not possible to retain the FSRU Sequoia as Excelerate Energy (EE), which has committed a new deal in Brazil for LNG regasification, will have to give in the agreement with Brazilian government the name of one of the FSRUs (Sequoia, Exquisite) after September 03 (Friday), the new deadline which was revised by EE on the insistence of the federal government as its earlier deadline was August 31.

It is pertinent to mention that SSGC had taken an undertaking from Engro that after dry-docking, EETPL will bring back FSRU Exquisite. However SSGC also wants to utilize the excess capacity of FSRU Sequoia and this is how SSGC has engaged the two FSRUs, which are 20 percent of the Excelerate Energy’s fleet.

SSGC wants to have the buy option rights on Sequoia FSRU on the price of old FSRU Exquisite, which is a large and a state-of-the-art vessel. EETPL says it takes 1-2 years for reaching the agreement for rights on FSRU like Sequoia as many tedious issues are involved in it. However, SSGC will have no rights to buy out new FSRU at the price of old FSRU.

And if the SSGC does not extend the required waiver, then the old FSRU Exquisite of 630mmcfd will come on September 11-14 and Sequoia will remain here till 10-11 and then it will leave for Brazil. And this is how the government will not be able to utilize the excess capacity of 150mmcfd available at FSRU Sequoia in the winter season. However, independent experts say that EETP is trying to fool the government and wants to keep the new FSRU on its own terms, but practically it has extended the stay of the new FSRU for two more weeks.

The SSGC management was earlier supposed to table the issue of retention of FSRU Sequoia in BoDs meeting, which was held on September 1, but it did not table the said item for final decision to either retain and or not said FSRU. Sources said that NAB has not extended a green signal for utilisation of excess capacity so far, which barred the SSGC top management from tabling the issue in the BoD meeting.

However, this time, there will be a huge gas crisis in the country in the coming winter season as the demand for gas goes up to 5 bcfd (billion cubic feet per day) during peak winter season. Pakistan’s system (local) gas production has tumbled to 2.8bcfd and Pakistan has the contracted capacity to import LNG of 1.2 bcfd. The PTI government wants to utilize the excess capacity of 300mmcfd available at FSRUs on Engro and PGPCL terminals. PGPCL and Pakistan LNG Limited are also at an advanced stage and will soon reach an agreement for the utility of excess capacity of 150mmcfd available at FSRU anchored at PGPCL LNG terminal. Once the agreement is inked, then PGPCL top management will utilize 150 excess capacity under private-to-private model.

However, coming to the Engro LNG terminal, the letter whose copy is available with The News says that US company Excelerate Energy (EE) has to deploy one of the FSRUs in Brazil in a government terminal, two FSRUs cannot be kept encumbered for Pakistan. Hence, as a minimum and without terminating its option to buy the FSRU Exquisite, which was originally required to enable the option to buy the FSRU Sequoia, SSGC has to allow EE the two-year waiver on its options rights on Exquisite while the rights are negotiated on Sequoia. The letter says SSGC agrees that step in rights are not automatic and reasons for its activation are not going to happen. Even if they happen, SSGC has full rights under the LSA to take over the terminal. All rights in LSA remain including SSGC’s right to the option to buy the FSRU under an event of default, which could not be cured.