In a serious breakthrough, Pakistan has managed to safe a $21 billion long-term contract from Qatar to provide liquefied pure fuel (LNG) at a extremely enticing value, a transfer that’s doubtless to assist alleviate a number of the extreme, power shortages of pure fuel within the nation.
Below the phrases of the settlement, Qatar will provide Pakistan with 500 million cubic toes per day (mmcfd) of LNG beneath a pricing system that interprets to a present value of LNG of $7 per million British thermal models (mmbtu), a value decrease than that paid even by Indian importers, who’re presently paying near $9-$10 per mmbtu.
The federal government has not clarified what the pricing system is, although LNG contracts are sometimes priced at a 10-15% low cost to Brent, the worldwide benchmark of crude oil. The worth doesn’t embody the price of transport the LNG to Karachi, which will be substantial.
Whereas the brand new deal is prone to be a welcome injection of provide into the nationwide fuel grid, it won’t come near fixing the general pure fuel shortages which have crippled giant components of the financial system. Pakistan’s whole manufacturing of pure fuel is presently near 4,000 mmcfd, whereas demand is nearer to six,000 mmcfd. The 500 mmcfd from Qatar would, subsequently, solely fill a few quarter of the present shortfall.
The $7 per mmbtu value, whereas enticing relative to the place the general LNG market stands, remains to be dearer than the $5 per mmbtu the federal government would presently have been paying had the Iran-Pakistan fuel pipeline been absolutely constructed and operationalised by now. Value variations between LNG imports and pipeline fuel are pure: the worth of the LNG contains the price of chilling it right down to minus 170 levels Celsius, whereas pipeline fuel doesn’t have that price.
At a gathering of the Cupboard Committee on Power on February 12, Prime Minister Nawaz Sharif had been knowledgeable that the settlement with Qatar Fuel had been finalised and that the worth was set at a stage decrease than those paid by different nations within the area. Different nations had additionally expressed an curiosity in supplying LNG to Pakistan, however Qatar is the closest giant provider, which would cut back transport prices considerably.
The LNG import terminal at Port Qasim, being constructed by Engro Elengy, a subsidiary of the Engro Company, is anticipated to be accomplished by March 10, forward of its March 31 contractual deadline. Two ships carrying 50,000 tons of LNG are anticipated to then begin arriving at Port Qasim every month initially, a tempo that may slowly be elevated to 4 ships a month.
In the meantime, the petroleum ministry is negotiating with the business affiliation of Compressed Pure Fuel (CNG) retailers for the sale of the primary cargo.
Given the precarious funds of the power sector, notably with respect to the ability sector, the federal government has tried to create a mechanism that may guarantee a easy circulate of funds to LNG suppliers. At present costs, every LNG cargo would price $30 million, which might be paid instantly by the finance ministry to Pakistan State Oil, the importing entity, which might then pay Qatar Fuel. The funds the finance ministry makes could be deducted from the subsidy funds it owes to impartial energy producer (IPPs).
The IPPs could be required to offer standby letters of credit score of between $20 million and $60 million and an operative letter of credit score for one months’ provide of fuel utilisation of $10 million to $30 million to PSO.