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Pakistan said on Wednesday it had signed a 15-year agreement to import up to 3.75 million tonnes of liquefied natural gas a year from Qatar, a major step in filling Pakistan's energy shortfall. The deal, Pakistan's biggest, will help the country add about 2,000 megawatts of gas-fired power-generating capacity and improve production from fertiliser plants now hobbled by a lack of gas, a government official said.

"This is a huge and significant achievement because this diversifies Pakistan's energy mix," the official said. "This is the single largest commercial transaction that Pakistan has entered into." Supplies will start in March, Qatar's state news agency QNA said. They will eventually come to around five LNG cargoes per month, the official said. Pakistan, a nation of 190 million people, can only supply about two-thirds of its gas needs. The ruling party, which campaigned on promises of resolving the energy crisis, wants to ease shortages by expanding LNG shipments before a 2018 general election.

The deal signed between Pakistan State Oil company and Qatari's Qatargas-2, the world's biggest LNG producer, was witnessed by Pakistan's Prime Minister Nawaz Sharif, the official said.

According to the statement, LNG arriving in any particular month will fetch 13.37 percent of the preceding three-month average price of a barrel of Brent crude oil. A price review is permitted 10 years after the start of supply. A cancellation option could shorten the deal to 11 years if the parties fail to agree a new price. A period to build up supply is provided for.

Spot LNG prices are trading at multi-year lows of $5.75 per million British thermal units (mmBtu). Pakistan, along with Egypt and Jordan, was a newcomer to the LNG import market in 2015, helping drive up demand and absorb growing world supplies from a wave of new projects.

Pakistan's first floating import terminal got its first spot imports last April and has import capacity for around 4.4 million tonnes of LNG per year. The country has also tendered for a second terminal, which should be operational by mid-2017. In 2016, Qatargas, the world's biggest LNG exporter, will supply 2.25 million tonnes, followed by a ramp-up to 3.75 mt/year from the second quarter of 2017. Under the take-or-pay deal, Pakistan retains flexibility to reduce or raise Qatari LNG intake by three cargoes per contract year.

APP adds: Pakistan and Qatar on Wednesday inked an agreement on supply of around US one billion dollars worth of Liquified Natural Gas to Pakistan annually to help the country meet its energy shortfall. The agreement on Long Term LNG Sale and Purchase was signed during the Prime Minister Muhammad Nawaz Sharif's two-day visit to Qatar. Minister for Petroleum Shahid Khaqan Abbasi and Chairman of Qatargas Board of Director Saad Sherida Al-Kaabi signed an agreement at a ceremony at Diwan-e-Emiri.

Under the agreement the price for each LNG cargo in a particular month has been agreed at 13.37% of Brent, where Brent value is average of the preceding three months Brent value.

According to details of the Long-Term LNG SPA with Qatargas the Qatar Liquified Gas Company Limited would sell Pakistan State Oil Company Limited, LNG for a period from 2016 to 2031. The annual Contract Quantity for 2016 has been agreed at prorate of 2.25 mt, for 2017 Q1: prorate of 2.25 mt, and for 2017 Q2 to 2031: 3.75 mtpa. The Long-Term LNG SPA also provides for annual upward and downward flexibilities upto three LNG cargoes per contract year. Downward flexibility can be accumulated for two contract years.

The payment terms state that PSO would make payment 15 days after completion of unloading. Pakistan is currently facing a severe shortage of natural gas for its electricity generation and industrial use and estimates put the supply-demand gap at around 2 to 4 bcfd. Minister for Petroleum later told media persons that the import of LNG from Qatar would boost Pakistan-Qatar ties. He said LNG from Qatar was being purchased at the best available rates and would help start production of 2000 MWs of electricity from power houses that were currently not operational.

The Petroleum minister said under the agreement Qatar would provide around $1 billion of LNG annually to Pakistan that would meet 20 per cent requirements of the country. He said the deal would help the country get out of its energy crisis and provide 35 million tons of LNG.

He said it would also help provide gas for the fertiliser factories and domestic users. The Economic Co-ordination Committee of the Cabinet (ECC), authorised negotiation with Qatargas for import of LNG upto 500 mmcfd in July 2013. In August 2014, the ECC constituted LNG Price Negotiation Committee (PNC) comprising Secretary Petroleum as Chairman, Representatives of Finance Division, Water and Power and BOI, Managing Director SNGPL, Managing Director SSGCL, Managing Director PSO and Managing Director ISGSL (Secretary Committee). The Price Negotiation Committee after a series of meetings with Qatargas finalised the price and key commercial terms of the Long Term LNG SPA with Qatargas.

The ECC in its meeting held in January 13 accorded, in principle, approval to the recommendations made by PNC and also allowed PSO as Buyer to execute the Long-Term LNG SPA with Qatargas as Seller. Under the agreement the two sides can review the price once after the 10th anniversary of the start date. "And if it fails either party may terminate the SPA with effect from the end of the contract year in which the termination notice was served in which case the supply period can be as short as 11 years," the agreement said.

According to the details available Qatargas has a cap on port charges at US $320,000 per shipment. Port charges over and above of that will be paid by PSO. PQA charges are presently around USD 750,000. The price comparison provided by the Ministry of Petroleum at $40 Brent states:


Mashal Project US $ 6.94 /MMBtu

Integrated Project US $ 6.01/MMBtu

Qatar Last Offer US $ 6.56 /MMBtu

IP Border Rate US $ 5.70 per MMBtu

TAPI Border Rate US $ 5.90 per MMBtu

Qatar Current US $ 5.35/MMBtu


The prices mentioned above are based on last three months of Brent average of US $40.

Copyright Reuters, 2016

Copyright Associated Press of Pakistan, 2016

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