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    Pakistan plans LNG import ramp up [NGW Magazine]

Summary

As domestic production flatlines and demand grows, the country is seeking more LNG and has already launched a tender attracting big names. [NGW Magazine Volume 4 Issue 16]

by: Shardul Sharma

Posted in:

Liquified Natural Gas (LNG), Asia/Pacific, Premium, NGW Magazine Articles, Volume 4, Issue 16, Exploration & Production, Import/Export, Pakistan

Pakistan plans LNG import ramp up [NGW Magazine]

With indigenous supply of natural gas consistently falling well short of demand, Pakistan has been relying on LNG to fill the gap. This dependence on imported gas is expected to continue in the short to medium term. Pakistan has two import terminals located at Port Qasim, near Karachi.

It started importing LNG in 2015 with the commissioning of the Exquisite FSRU and commissioned its second FSRU, BW Integrity, in late 2017. The country has gradually ramped up imports over the last four years. It imported 5.8mn metric tons of LNG during the financial year 2017-2018 (July-June), according to data published by Port Qasim Authority. Data for the 2018-2019 financial year was available till April, which showed that imports were 5.14mn mt. Imports this year are most likely to top previous year’s figures when the official final numbers are out.

With no immediate substantial increase in supply of local gas expected, Pakistan’s dependence on LNG is set to continue. The government is now looking to add around 400mn ft3/day of regasified LNG to its gas distribution system, the petroleum division of the energy ministry said late last month on Twitter. The government wants to secure the contracts for this additional supply by end of this calendar year, it said. Recently, state-owned Pakistan LNG floated a tender seeking to contract supply of 240 LNG cargoes over the next ten years. The company is seeking two cargoes of 140,000 m3 every month, which would be delivered on ex-ship basis to Port Qasim. That would provide about 200mn ft³/day, or half the total. The petroleum division did not say where it will source the LNG from, but stated that the US and Australia are going to be the next major suppliers to the LNG market.

According to Reuters, Pakistan’s 240-LNG cargo tender has reportedly attracted the interest of the Italian major Eni, PetroChina as well as Azerbaijan’s Socar and the Swiss trading house Trafigura. Citing sources close to the matter, the news agency reported that four companies are looking to grab a share in the 10-year tender estimated at $5bn-$6bn.

At present, Pakistan has a long-term LNG contracts with Qatar. In 2016, Pakistan State Oil and Qatargas signed a 15-year agreement for supply of 3.76mn mt/yr at a price of 13.36% of Brent. Pakistan LNG also has a long-term deal with Eni, which commits the Italian company to supplying 0.75mn mt/yr.

Import rules ease; plans for the third terminal

As volumes of LNG imports grow, Pakistan will need to enhance its infrastructure. Keeping this mind, the government has exempted import of new floating storage and re-gasification units (FSRUs) from duties and taxes, Pakistani media reported late-July.

This decision by the government will allow Engro Elengy Terminal Pakistan to replace the existing unit, Exquisite, with a new one with additional capacity. The LNG terminal presently in operation has a handling capacity of 690mn ft3/day whereas the new FSRU would have capacity of 790mn ft3/d, the media reports said. Engro had brought an old vessel, which had been used in Kuwait for five years.

Pakistan’s Federal Board of Revenue (FBR) has issued a statutory regulatory order (SRO) for waiving taxes and duties on temporary import of floating LNG units, local media reported.

Pakistan is also now planning to set up the third terminal at Port Qasim. The Economic Co-ordination Committee of the cabinet early in July approved the resolution of the Port Qasim Authority board to allow an amendment of its master plan to accommodate the prospective third LNG terminal at Port Qasim.

At present, the two LNG terminals are supplying about 1,100mn ft3/d of regasified LNG to customers downstream. Of this, the power sector is consuming 790mn ft3/d and the fertiliser industry 180mn ft3/d, according to Pakistani media reports.

Meanwhile, the government late-July gave Trafigura a 10-year licence to import LNG and distribute and sell re-gasified LNG in the country. This is the country’s first licence in private sector for LNG import aimed at improving availability of gas to different industries and also optimal utilisation of LNG terminal, local media reported.

Qatari deal mired in controversy

Although LNG demand growth in Pakistan looks promising, the industry has been mired in controversies. Ex-prime minister of Pakistan Shahid Khaqan Abbasi was arrested by National Accountability Bureau (NAB) mid-July in connection with alleged corruption in awarding the Qatari LNG import contract.

Abbasi, who is a senior member of the Pakistan Muslim League (PML-N), succeeded Nawaz Sharif when the latter was dismissed by the supreme court in 2017 and sentenced to seven years in prison late last year for corruption. NAB has alleged that Abbasi misused his authority in awarding the contract for an LNG terminal to 15 companies in a non-transparent manner. NAB said Abbasi was charged on involvement in a corruption scandal in Qatari LNG import deals during 2013 to 2017 when he was the petroleum minister. 

Pakistan State Oil and Qatargas signed in 2016 a 15-year sale and purchase agreement for 3.76mn mt/yr at a price of 13.36% of Brent oil. The NAB also signed the warrants for the arrest of another PML-N leader, Miftah Ismail, and of a former managing director of Pakistan State Oil, Sheikh Imranul Haque. In early-August both Ismail and Haque were arrested by the NAB.

Reviving local gas production

Although Pakistani government has on numerous occasions said that LNG will continue to play an important role in country’s overall energy mix, the focus remains on increasing domestic gas production. Pakistan’s domestic gas production has remained stagnant in the range of 34-36bn m3/year over the last decade, according to BP Statistical Review of World Energy 2019.

Early in July the government said it planned to auction 35 new oil and gas blocks in next few months in order to boost domestic production, according to local media reports. The government wants to invite more foreign and local companies to search for oil and gas in Pakistan including offshore in the Indus Delta.

"We have huge reserves of oil and gas in our offshore areas and will continue our attempts until they are successful," special assistant to the prime minister on petroleum, Nadeem Baber, was quoted saying by the local press. He pointed out that more foreign companies will be invited to start exploration activities in Pakistan. "Exxon is also interested in starting exploration activities in other blocks," he said. 

Transnational pipeline projects in limbo

The Turkmenistan-Afghanistan-Pakistan-India (Tapi) and Iran-Pakistan (IP) gas pipeline projects could have come as a blessing to energy-starved Pakistan, but the future of these long-delayed projects remains uncertain. The Tapi project has however seen some progress on the ground in the recent months.

The ground-breaking ceremony for the Pakistan section of the $10bn four-nation Tapi pipeline project is expected to take place in Chaman in October this year, according to a July report by Associated Press of Pakistan.

Tapi is planned to be 1,814 km long, of which 214 km run through Turkmenistan, 774 km through Afghanistan, and 826 km through Pakistan to the border with India. Work on the Afghan section of the Tapi pipeline started in February last year, with a ground-breaking ceremony taking place in Herat city. Turkmenistan, with an 85% stake in the project, started work on its territory in 2015.

The pipeline aims to transfer 33bn m³/yr of gas from Turkmenistan’s giant Galkynysh gas field to participating countries by 2020. However, many believe the security situation in Afghanistan could yet derail the project.

Tapi has tentatively moved forward but the future of the Iran-Pakistan gas pipeline project looks even more uncertain owing to US sanctions on Iran. In February 2018, Iran's oil minister Bijan Zanganeh said Pakistan had deferred Iranian gas imports for so long that Tehran is considering referring Islamabad to the international arbitration court.

According to the agreement signed between the two nations, Pakistan should have started taking 22mn m³/d of Iranian gas imports in January 2015. Pakistan is yet to start building the pipeline on its territory. Iran completed its section of the pipeline in 2011, and reportedly offered Pakistan $500mn to help with construction. The estimated total cost of the pipeline is $7bn.

The Iran-Pakistan gas pipeline deal was originally conceived to deliver Iranian gas to India via Pakistan, but New Delhi withdrew from the agreement because of security issues and high costs. And with LNG proving affordable, there may be even less appetite for long-term contracts with remote or unpopular regimes.