PAKISTAN has clinched a good deal for the long-term supply of LNG from Qatar. Under the new contract, Qatar will provide an additional 200mmcfd at around 10.2pc of Brent for 10 years starting next year. The expected reduction in port charges by Doha would further push down the price to 10.13pc of Brent.
The government says the new bargain entails the lowest-ever publicly disclosed price under a long-term contract in the world, which is 31pc less than the 15-year contract signed by the previous administration. This is almost the same price at which Qatar is supplying LNG to China. The new price is also 15pc-16pc less than the average spot purchases of 11.9pc of Brent in 2020.
The current rate has been locked for the first four years of the life of the contract after which it can be renegotiated. The monthly supply of the two cargos will replace the demand of an expiring and two existing long-term, but more expensive, contracts. Islamabad also has the option to shift its summer demand to winter without any changes in the agreed gas price.
The debate on the gas sector during the last two years has mostly focused on the price of imported gas at the expense of much-needed reforms. Now that the PTI government has proved that the 2015 deal with Doha has cost the country quite a bit, it’s time to move on to address the real challenges facing the gas market and overhaul it.
With indigenous gas reserves depleting fast because of decades of inefficient use, Pakistan’s increasing reliance on imported LNG to meet demand has exposed many fault lines in this sector. The situation calls for immediate liberalisation of the LNG market to ensure energy security and affordability through greater involvement of the private sector. The private sector can deliver LNG more efficiently and at a reasonably lower price than the public sector.
Though the government has in the recent months taken steps to encourage private investment in new LNG terminals and virtual pipelines, bureaucratic snags continue. Policymakers, it seems, are still unable to grasp the changes that the country’s increasing dependence on imported LNG has brought about in the last few years. Continued government controls over the market mean growing gas shortages for domestic industry and other consumers.
The authorities are unable to bridge the supply gap, which is estimated to grow to 3.68bcfd in the next five years and 5.39bcfd in 10 years because of financial reasons and slow decision-making processes. At the same time, the two public-sector gas companies have together accumulated a debt of Rs550bn-Rs600bn owing to their inability to recover costs, massive subsidies given to powerful industrial lobbies, exceptionally high system losses and theft. If we don’t start the process of gas market liberalisation by finalising the Third Party Access rules and Inter-User Agreement, winter shortages next year may worsen.
Published in Dawn, March 1st, 2021
