ISLAMABAD: The Competition Commission of Pakistan’s (CCP) study on the liquefied natural gas (LNG) sector has concluded that the current system and agreement is pushing the end consumers of Regasified-LNG (RLNG) to a competitive disadvantage.

The CCP has suggested that the government should renegotiate the LNG deal and see if the price review period could be bargained to a lower term to lessen and end the disparity between contract and competitive prices, bringing them closer to prevalent market prices.

The draft study of the LNG sector shows various barriers to competition at all levels of the LNG value chain in the upstream market due to negotiated LNG contract price and the pricing model adopted by PSO and Pakistan LNG Ltd (PLL).

While the study has also stated that the charges were high at the midstream too which included re-gasification at the Engro Elengy Terminal Ltd (EETL), and Pakistan Gasport Consortium Ltd (PGPC) terminal, where the toll tariff was $0.479/mmBtu and $0.4177/mmBtu respectively, $250,000 per day.

Port Qasim charges were $600,000 per vessel and handling of RLNG by SSGC results in higher network losses.

In the downstream, due to the difference in cost structure that is natural gas versus RLNG price ring-fenced pricing resulting in higher cost of production for the end consumers as against the natural gas.

The CCP has suggested that there was a need for ‘Contract Price Review’ of the 15-year agreement between Pakistan and Qatar.

“Contrary to the globally traded natural gas prices, Pakistan’s LNG sale purchase agreement (SPA) is indexed to Brent price which has been on the rebound of late, meaning higher LNG price to be paid by the LNG importer.

The CCP has said, “In the face of global oil market volatility, some of the features of the standard SPAs like ‘Take or Pay’ and ‘Contract Price Review’ need to be revisited. These features are seen to be ‘restrictive’ and potentially ‘divergent’ from market forces of demand and supply.”

Published in Dawn, November 16th, 2018