Islamabad:
Pakistan decided on Tuesday to seek the renegotiation of his agreement for the import of liquefied natural gas (LNG) with Qatar after his industry slowed down and the energy demand fell, which resulted in more than 50 surplus charges during the next and a half years.
The agreement, which will expire in 2031, has left policy formulators with two options: keep its 400 MMCFD per day of cheaper local gas production facilities along with the deviation of surplus gases expensive to subsidized residential use or seeks renegotiation of the agreement.
The Economic Coordination Committee (ECC) of the Cabinet has allowed the oil division to be involved with Qatar to renegotiate import volumes to minimize the importation of imported gas to residential consumers and import only what is required, according to people who attended the ECC meeting of closed doors.
It is expected that the Minister of Petroleum, Ali Pervaiz Malik, trip to Qatar, since the Pakistani authorities are not yet sure if Qatar would also be willing to reopen import volumes, the sources added.
According to the official evaluation, there will be at least 51 surplus charges worth $ 1.2 billion to $ 1.5 billion from July this year until December 2026, according to the sources.
After assuming the position in March of this year, Ali Pervaiz Malik has advocated that the energy division fulfills its responsibilities when lifting the gas quota of 600 MMCFD or there will be no other option than to seek renegotiation.
According to a statement from the Ministry of Finance on the matter, “the ECC reviewed the general situation of supply of the gas sector in the country and ordered the Ministry of Petroleum to take effective measures to control losses in the sector and guarantee operational efficiency.”
The sources said that given the surplus of imported expensive gas, the government has three options. Pakistan can ask Qatar to reduce the number of monthly charges to around 6 to 7 of the existing 9. The second option is that the government can seek an extension in the expiration period with the request to postpone the delivery of surplus charges beyond the original expiration period of 2031.
The sources said that the third option of the non -performance damage clause (NPD) is provided in the contract under which Qatar can sell gas to the third and claim losses of Pakistan, if the price of selling gas is lower than the contract price.
Pakistan is obliged to pay the volumes of LNG hired even if it is not consumed. The contract allows flexibility to adjust the intake in up to three loads per year.
The Pakistan-Qatar LNG agreement consists of two main agreements signed in 2016 and 2021, with the aim of addressing Pakistan’s energy needs through long-term LNG supply contracts.
The sources said that Pakistan will obtain an opening to finish the agreement in 2026, if both parties do not agree on a new gas price. The 2016 Agreement allows the termination after 11 years, which is the year 2027, if the price renegotation fails in 2026. The 2021 Agreement has a revision period of 4 years shorter, which also begins in 2026, but a fixed completion date of 2031 unless it is reneged or ends early.
The 15 -year agreement allows Pakistan to import up to 3.75 million tons per year (MTPA) of LNG to address its energy deficit. The 2016 agreement had signed at 13.37% of the price of Brent crude oil. Each load corresponds to approximately 100 million cubic feet per day (MMCFD), for a total of 500 MMCFD.
The 10 -year agreement of the 2021 provides up to 3 MTPa from LNP at a lower rate than the 2016 agreement. It was signed to replace the most expensive contracts and guarantee the security of the offer.
The price of the 2021 agreement was 10.2% of the Brent crude, a 31% reduction compared to the 13.37% rate of the 2016 agreement.
Pakistan has already deferred five charges from the 2016 agreement to 2026 without financial penalties.
Due to the slow economic growth that caused a lower demand for electricity from the national network and low general demand and highly unavailable prices, the Government was not completely running, the dwill fired power plants, which was one of the reasons for the import of gas.
Due to approximately RS3,500 for the price of gas imported by MMBTU, the Government cannot divert the gas to homes without incurring large losses.
The LNG was mainly imported to meet the demand of the electricity sector, while the balance was made available to the industry. The LNG sales purchase agreements (SPA) brought 100% of the PSO/PLL pay -pay clause, while instead of reflecting the same clauses, the gas supply agreements (GSA) with electrical plants were initially executed to 66% of the minimum shot and then 50% reviewed with the effect since January of this year, the sources added.
Before the commissioning of these LNG -based electrical plants, these plants are supposed to be more efficient in the order of economic merit (EMO) and/or they would be declared as essential plants for the maximum loads that did not happen, they added.
With the passage of time, the demand for LNG of the electricity sector has been substantially reduced due to the availability of generation of other sources that have led to the problems of surplus GNL in the system. This excess LNG in the system has been exacerbated even more with a drastic decrease in LNG consumption by means of captive power plants due to the imposition of the network transition tax.
The sources said that SNGPL has reported that around 11 charges are surpluses for the period from July to December 2025 and, similar for the 2026 calendar year, it is estimated that some 40 LNG charges are surpluses, considering the projected demand of the electricity sector and the destruction of demand in the CP.
This translates into $ 1.2 billion to $ 1.5 billion from an unnecessary import invoice for a country whose foreign exchange reserves of almost 100% are based on foreign loans.
The sources said the SNGPL is limited to diverting the expensive RLNG to the domestic sector. To deal with the problem of surpluses, SNGPL resorts to the reduction of gas production form local fields, which vary between 250 and 400 MMCFD, to maintain the integrity and safety of the system due to the pressures of upper line packages.
The reduction of local production in turn is affecting the income of exploration and production companies, in addition to affecting the production of condensate, crude oil and LPG of oil and gas fields, they added. According to the estimated income requirements (err) for CFY as determined by OGRA, the RLNG diversion cost to the national sector in the SNGPL network has been estimated at RS242 billion against 24 charges that led to the increase in consumer gasoline prices, the sources said.
The only option for Pakistan now is to request the fraternal country to review the agreement to the light of these developments, the sources added.
