According to a news report carried by Business Recorder, the Liquefied Natural Gas (LNG) contract with Qatar has hit a formidable snag because two other businesses have offered rates lower than those agreed by the nine-member price negotiation committee of the Government of Pakistan (GoP) and Government of Qatar.
The GoP has nominated Pakistan State Oil (PSO) as the vehicle for imported gas while the Qatari government has nominated Qatargas as the supplier of this commodity from the Sheikhdom.
Pakistan has been offered a 15-year contract by Qatargas at 13.9 percent of Brent oil price. However, Shell and Gunvor Oil have offered significantly lower prices – 3.8 percent and 13.39 percent of Brent oil, respectively – for LNG from Russia for five years.
What needs to be determined is the element of freight to determine the cost of LNG at Port Qasim to work out the proper comparison. Insofar as Russia is concerned, not only is the successor state to the defunct Soviet Union far, far away from Pakistan in terms of distance both by land and seas, it is also facing a slew of Western political and economic sanctions.
However, in presence of a 13.39 percent of Brent offer from Gunvor Oil it would indeed be difficult for GoP to accept the Qatargas offer of 13.9 percent of Brent even though we feel Pakistan needs to sign-up with all three suppliers with dwindling domestic gas output and the shortage of natural gas will be in the vicinity of 12 million tons.
Therefore, not only are LNG supplies required to be hedged for longer periods, these are needed to be protected through a guaranteed availability mechanism.
New discovery of domestically produced natural gas has been guaranteed at 4.5 dollars a ton. Therefore, we need to bring the average price of imported LNG close to this figure.
Thus, both Pakistan and Qatar governments need to show a degree of flexibility. Depending solely on spot purchases, in a falling international LNG price, may look attractive at this stage but we should not be risking it, as domestic consumers as well as industry and commercial users depend on its supply.
Therefore, all the three offers need to be accepted but at a uniform rate so that eyebrows are not raised. The Pakistani authorities have wasted enough time on energy supplies and it is time to conclude it to ensure availability of natural gas at a price that the nation can afford and our exports become competitive.
Higher input cost leads to higher output cost. Let us learn a lesson from non-availability of electricity and also avoid the shut-outs of natural gas in the winter months now being sadly witnessed in colder areas of the country.
The price negotiation committee has done a good job in bringing Qatari’s to agree on a long-term contract of 15 years at below 14 percent. Let us hope we can conclude with Qatar at a more reasonable price; for example, 13.5 percent of Brent oil price. At 13.9 percent the price of imported LNG comes closer to $5.25 dollars.
Let us endeavour to bring the average price of LNG close to domestic price of natural gas. Meanwhile, we need to also work diligently and quickly on the infrastructure to regasify the imported LNG and put it in our system to supplement the dwindling supply of domestically produced gas.
We have wasted domestic supply of natural gas and we need to avoid doing the same on imported gas. Piped gas from Iran (IP) and Turkmenistan (TAPI) look attractive and would be more than welcome. So do not count your chickens before they are hatched.
The Economic Co-ordination Committee (ECC) of Cabinet cannot and should not hide behind the plea that PSO is a publically-listed and governmental-owned company and its Board of Directors need to approve the LNG contracts. PSO has only one representative on the nine-member price negotiation committee dominated by federal secretaries.
We know transparency is important but also remember that process is more important than price in governmental decisions. However, imported gas at the best price is important with reliable availability is of more essence to consumers of natural gas.