Thursday, December 9, 2021

Pakistan and Qatar sign a 10-year LNG supply contract

Pakistan and Qatar signed 10 years supply contract for Liquefied Natural Gas (LNG) for an additional 200 million cubic feet per day (MMCFD) at a rate about 31 percent less than the 2015 contract for 500MMCFD.

The 10-year agreement signed on Friday involved the “lowest publicly disclosed price under a long-term contract in the world” and was achieved through joint efforts by political and military leaders, said the Prime Minister’s Special Assistant Nadeem  Babar while speaking at a news conference after the signing ceremony.

The PTI government tried, early in its mandate, to renegotiate the long-term contracts with Qatar signed by the Pakistan-Nawaz Muslim League government in 2015-16 with similar claims that it had guaranteed the lowest long-term price and no major LNG buyer – much larger than Pakistan – had so far obtained such a price.

However, Qatar refused to even discuss the existing contract, saying it had dozens of similar long-term contracts with other countries and did not want to set a precedent but offered to provide price discounts of 20-25pc for additional supplies.

But 200MMCFD LNG considering the close friendly relations between the two countries.

However, the offer did not materialize, as Pakistan did not have a capacity beyond 100MMCFD in additional quantities at the time and also due to disagreement within the cabinet for political reasons.

PM adviser says political and military efforts are also behind the lowest price ever publicly released in the world.

Babar also told the press that supply under the new Qatar deal would replace the demand for both existing and expiring long-term deals.

Furthermore, Under the new agreement, which will take effect from January 2022, Qatar will initially deliver two ships (containing a total of about 200MMCFD LNG) per month.

LNG Contract Rate:

Subsequently, supplies will be increased to up to four vessels (400MMCFD) at a rate of 10.2% from Brent.

In contrast, Pak-Qatar’s first LNG contract was signed for 15 years, starting with 100MMCFD (one vessel per month) and then going to 500MMCFD (five vessels per month) at a rate of 13.37% from Brent.

The new contract has an option to renegotiate the price after four years instead of the 10 years that had been fixed in the contract previously signed.

The PM’s aide said that total cash purchases in December 2020 averaged 11.90% from Brent compared to 13.37% from Brent in the three initial long-term contracts signed about five years ago.

The new price of Qatar at 10.2% of Brent is also 15-16% lower than the average of 11.90% Brent cash purchases and would guarantee price stability and accessibility together with the security of supply.

However, based on the volume of the new contract, Pakistan would pay about $ 316 million less in cost when compared to the same volume under the existing contract, Babar said. “In 10 years, this will reach $ 3 billion,” he added.

Babar said the new contract would go into operation in January 2022, but also provided for at least one additional ship in December of this year, if necessary.

He said the Pakistani state would also import LNG from Qatar under the new agreement, but flexibility requirements were included in the contract if the import contract was awarded to Pakistan LNG Limited (PLL).

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