While it has not yet been revealed at what rate will the liquefied natural gas be imported into Pakistan, there is speculation that the expected price at C&F will be in the $15/mmbtu range at current benchmarks.

The local media and energy experts have been reporting that India received gas at an average of $10-12/mmbtu from Qatar in 2013. These figures refer to the 25-year LNG deal India’s Petronet signed in 2004 with the Qatari company RasGas, to import 5m tonnes per annum (mtpa).

The LNG was priced at 12pc of Japanese Crude Cocktail (JCC) and was capped for five years, with a gradual increase till full price by 2013-2014. In January 2014, it reached a full oil-indexed slope of 0.1265. At this slope, the price is over $14/mmbtu.

India’s LNG history: Realising that there was a gap between supply and demand of energy in the country, India began to import LNG in 2003, with a volume of less than 0.5m metric tonnes per annum. It gradually increased imports over the years to better meet its energy needs.

A majority of LNG contracts are not based on fixed prices, but pegged with oil prices, thus making their prices vary. Only American shale gas is pegged to the Henry Hub.

Today, the demand for LNG has risen exponentially, especially after the Fukushima nuclear disaster in Japan. Argus reported that the demand for natural gas outstripped supply in 2013.

India signed a deal to import LNG from Australia in 2008 that will begin in 2016, with the delivery price equaling 15.5pc of Brent, which, going by current prices, would be about $17.25/mmbtu.

Additionally, Argus reported in December 2013 that spot prices in India remained steady, with selling indicators holding at $17.5/mmbtu.

While the Minister of Petroleum and Natural Resources, Shahid Khaqan Abbasi, has stated that the price proposal has not been discussed with QatarGas as yet, speculation by energy experts suggest that the expected price at C&F will be in the $15-16/mmbtu range at current benchmarks and indexed to Brent.

Additionally, there is the hype of US shale gas, and again, experts cite that the Gas Authority India Limited (GAIL) has signed a 20-year contract with Cheniere Energy Partners in Louisiana to import 3.5 million tonnes of LNG a year — at around $10.50/mmbtu. This is presumably at the Henry Hub (HH) price of $4/mmbtu. The current future price is above $5/mmbtu.

As mentioned above, LNG import contracts are not based on fixed prices, but are pegged — in this case, to the HH. And it is impossible to state at what price GAIL will be importing LNG from America 3-4 years from now.

GAIL’s contract with Cheniere is a future-based contract, which is dependent on a number of factors. One needs to keep in mind that up to a dozen long-term deals, each worth billions of dollars, have been signed in recent months by Asian and European companies looking to buy US LNG.

Pakistan can make similar arrangements by investing over a few billion dollars in liquefaction facilities, plus providing ‘A’ grade credit instruments. We, at the moment, are below investment grade.

Indian LNG prices follow different contract formulae, and these are summarised below:

• Rasgas contract (started 2004): 5mtpa with Petronet; JCC formula 12pc JCC; capped for five years, then gradual release till full price by 2013-2014

• Rasgas contract 2 (Petronet): 2.5mtpa; no cap; 12pc JCC

The above contracts are on free-on-board (FOB) basis.

• Petronet’s Gorgon contract with Exxon, for Cochi; 1.4mtpa; 14.5pc JCC

• Several short-term contracts (1-3 years) signed by GAIL and Petronet with several suppliers (Gas Natural, BP, Repsol) at market prices

• GAIL signed a 3.5mtpa, 20-year SPA with Cheniere, subscribing one of the Sabine Pass trains. The formula is HH based: 115pc HH + $3 (FOB USA). BG signed an earlier deal with a 2.5 fixed component, but it has a better credit rating. For lower credit rating buyers, new US projects are asking 125pc HH + $5-7 (fixed component).

• GAIL signed a 2.5mtpa deal with Gazprom. The GAIL-Gazprom price is somewhere around 13.6-13.8pc JCC

• Average landed price (spot) in India in November 2013 was $13.75, against $15.65 in Japan. Spot prices in Japan-Korea rose above $18.5 in January 2014, due to winter provisions.

• GAIL mentioned that its LNG average DES price is $13.50 at crude = $100, reaching $19 to end-users. Thus, the claim that $9/mmbtu LNG is currently a possibility for Pakistan in a globally competitive LNG market is invalid.

There are 17 exporting nations around the globe, and of the handful that are within economic shipping distance of Pakistan, only Qatar has uncommitted LNG left to sell. Oman, Yemen and the UAE are all sold out. The vast majority of global LNG is already sold on long-term contracts indexed to Brent or JCC.

Additionally, the fact that it only takes four days for gas shipments to come in from Qatar means that Pakistan can get gas relatively quicker, with lesser transport charges compared to Japan, China and India. n

The writer is the CEO of Engro Vopak Terminal Limited