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What's cooking between Qatar and Pakistan?by Indrajit Sen on Mar 29, 2016
So then, a long-term natural gas deal between Qatar and Pakistan now seems to be in place, after more than a year of dilly-dallying. As per the agreement signed between the two nations, Qatargas will supply the Pakistan State Oil Company Limited (PSO) with up to 3.75mn tonnes of liquefied natural gas (LNG) a year for 15 years, according to Pakistan’s Minister for Petroleum and Natural Resources, Shahid Khaqan Abbasi.
As part of the deal, which has been valued at a total of $16bn, Qatar is to meet about 20% of the energy-starved South Asian country’s gas requirements, and the first cargo is expected to dock at a Pakistani port as early as this month.
Soon after the formal agreement was sealed on February 10, during Pakistani Prime Minister Nawaz Sharif’s visit to the Gulf state, Abbasi told the Pakistani media that the deal was a ‘game-changer’ for his country, and that it would help save the country a billion dollars annually, once effective. From his side, Saad Sherida Al-Kaabi, chairman of Qatargas’ Board of Directors described the agreement as ‘a very important milestone in Qatar’s standing as a reliable energy supplier as it marks the first direct long term agreement between the two companies’.
Speaking to Oil & Gas Middle East on the sidelines of the 7th Gulf Intelligence UAE Energy Forum in Abu Dhabi in January, when negotiations between Qatar and Pakistan was (still) in its advanced stages, a couple of senior Pakistani officials expressed optimism about the (then upcoming) LNG deal and revealed certain behind the scenes details and discussions in Islamabad in the run up to the deal.
“In terms of LNG supplies, almost two years back, when we started a new administration in Pakistan (led by PM Sharif), one of our main focus was how to diversify getting energy into the country,” Jam Kamal Khan, Minister of State for Petroleum and Natural Resources, and Abbasi’s deputy, told this publication.
“So we initiated a plan of building a terminal facility. In one year’s time we made a terminal,” Khan said in reference to the Floating Storage and Regasification Unit (FSRU) at Elengy LNG terminal at Port Qassim in Pakistan’s largest city Karachi, the country’s first ever import terminal. In April 2015, the terminal received its first commissioned LNG cargo vessel from Qatargas. “In the same year, we had to foresee how to secure our volumes of supply,” he said, looking back at the time when PSO had entered into a spot buying deal with Qatargas, and was eyeing a deal to buy 1.5mn tonnes of LNG annually, with scope for the volume to increase over time.
“Then we started considering three strategies. The first one was going for a long-term contract with any of the sovereign oil and gas producing countries, at a government-to-government level. The second strategy was to go for an open bid supply from the market, which was again going to have a mid-range time period of three to five years. And then we had a plan of buying from the spot market too,” Khan revealed.
“We eventually went with a government-to-government deal with Qatar; Qatargas to be specific. Our talks and negotiations are very much in the final stages, and most probably in a few weeks’ time, we do expect to see signatures on the final deal,” Khan predicted almost a month before the deal.
Although not much details or figures have been made known by the parties about the pricing structure of the gas deal, Reuters quoted a government official in Islamabad saying that Pakistan had secured the LNG deal ‘at a competitive price’. “Due to the drop in oil prices, we were able to secure a very viable deal. It has been a very favourable deal to Pakistan,” the official was quoted as saying. In January, Pakistan backed out of a nearly $1bn deal to buy LNG from Royal Dutch Shell after receiving a lower price quote from Qatar, Reuters reported, citing its sources.
“The price structure has not been disclosed yet because of some clauses of non-disclosure in the agreement. It will be out soon,” Khan said. “We are looking at a long-term agreement with Qatar, so obviously the price structure would be a bit different. Spot prices tend to vary a lot, so we are not relying on that,” he said.