Can Pakistan Leverage Qatar LNG Deal to Get Better Iran Gas Price?

[RiazHaq]

http://www.riazhaq.com/2016/02/can-pakistan-use-qatar-lng-price.html

Pakistan has recently negotiated a good bargain with Qatar for importing $16 billion worth of liquified natural gas (LNG).

Pakistan will import as much as 20 million tons of the super-chilled gas annually from various sources including Qatar, enough to fuel about two-thirds of Pakistan’s power plants. Gas shortage has idled half the nation’s generators. A 75 percent drop in LNG prices since 2014 has dramatically reduced the cost of the South Asian country’s energy needs, according to a Bloomberg report.

LNG arriving in Pakistan from Qatar will fetch 13.37% of the preceding three-month average price of a Brent barrel (considering the present Brent price as a proxy, that would equate to $167.5 per 1000 cubic meters), according to a report in Azerbaijan's Trend News. It translates to $4.50 per million BTUs.

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A comparison with Iran's gas deals with Turkey and Iraq indicates that Iranian gas will not be competitive with Qatari LNG on Pakistani market. In 2014 Iran was exporting gas to Turkey at above $420 per 1000 cubic meters, but the figure plunged to $225, or $6 per million BTUs, currently due to low oil price. Iran previously said that the price of gas for Iraq would be similar to Turkey's price.

International Chamber of Commerce (ICC) arbitration court has recently ordered Iran to reduce its gas price to Turkey by 15% after Turkey complained. It's not clear if Iran will comply but even if it does, its price will still be $5.10 per million BTUs, much higher than the Qatari LNG price of $4.50 per million BTUs for Pakistan.

As recently as two years ago, LNG shipped to big North Asian consumer like Japan and Korea sold at around $15 to $16 a million British thermal units. Late last year, the price hit $6.65 a million BTUs, down 12% from September, according to research firm Energy Aspects. It expects prices to fall further in Asia this year, to under $6 per million BTUs, as a wave of new gas supply in countries from the U.S. to Angola to Australia comes on line, according to Wall Street Journal.

Petronet LNG Ltd, India’s biggest importer of liquefied natural gas (LNG), is saving so much money buying the commodity from the spot market that it’s willing to risk penalties for breaking long-term contracts with Qatar.

Will Pakistan be able to negotiate a better price with Iran? It seems difficult given the fact that Iranians have a reputation of being very difficult to deal with. Here's an excerpt about Iranians' negotiating style from Iranian-American author Vali Nasr's book "The Dispensable Nation":

"I remember a conversation in 2006 with Jack Straw, who was then Britain’s foreign secretary, about his time talking to Iran. He said, People think North Koreans are difficult to negotiate with. Let me tell you, your countrymen [Iranians] are the most difficult people to negotiate with. Imagine buying a car. You negotiate for a whole month over the price and terms of the deal. You reach an agreement and go to pick up the car. You see it has no tires. “But the tires were not part of the discussion,” the seller says. “We negotiated over the car.” You have to start all over again, now wondering whether you have to worry about the metal rim, screws, or any other unknown part of the car. That should give you a sense of what talking to Iran looks like".


Regardless of whether Pakistan succeeds in using Qatar price leverage with Iran. it's good to see Pakistan finally beginning to take advantage of historic low gas prices to alleviate its severe load-shedding of gas and electricity.

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In addition to signing the Qatar LNG deal, Pakistan has launched its first LNG import terminal in Karachi and started receiving shipments from Qatar. Pakistan has also signed a $2 billion deal with Russians to build a north-south pipeline from Gwadar to Lahore. But the country needs to rapidly build up capacity to handle imports and distribution of significant volumes of LNG needed to resolve its acute long-running energy crisis.

Here's a related video discussion:


[video]http://dai.ly/x3ccasi[/video]

http://www.riazhaq.com/2016/02/can-pakistan-use-qatar-lng-price.html

 

[RiazHaq]

Under the (LNG) agreement (with Qatar), the LNG price with QG2 could be reviewed once, after the 10th anniversary of the start date. In case of failure of price review, either party could terminate the agreement with effect from the end of the contract year in which the termination notice was served. Simply put, the minimum supply period under the agreement would not be less than 11 years.
The price agreed for each LNG cargo discharged in a particular month is 13.37pc of preceding three month average of Brent value. Annual contract LNG quantity for first year (2016) would be prorate of 2.25m tons and first quarter of 2017 after which the quantity would be increased to 3.75m tons per annum beginning second quarter of 2017.
The long-term agreement also provides for annual upward and downward flexibilities of up to three LNG cargoes per contract year. Downward flexibility can be accumulated for two contract years. Under the ‘take or pay’ clause of the agreement, Pakistan is required to take full contracted LNG or else pay full cost even if it fails to receive LNG quantities for any reason. The PSO would be required to make full payment 15 days after the completion of LNG unloading.
In order to ensure that the payment is made within 15 days, the PSO would provide Standby Letter of Credit to Qatargas at 105pc of the value of four LNG cargoes during the first year. From second year onwards, the PSO would provide the letter of credit of 105pc of the value of six cargoes.
The government said it had also carried out a price comparison of all long-term gas import options, including previous LNG import attempts at indicative Brent price of $40 per barrel, suggesting that LNG import from Qatar would be the lowest.


It said the delivery ex-ship price of LNG under the Mashal Project terminated following court disputes at $40 per barrel worked out at $6.94 per MMBTU.


The price of integrated LNG import project at $40 Brent (Current Price is $30) was calculated at $6.01 per MMBTU ( Current $4.50 per MMBTU ).


Qatar had last offered $6.56 per MMBTU at Brent price of $40 per barrel while the current price is $5.35.
Compared with the natural gas import options, the government claimed the delivery price at border under the Iran-Pakistan gas pipeline was $5.70 per MMBTU at $40 Brent price and that of Turkmenistan-Afghanistan-Pakistan-India was $5.90.


http://www.dawn.com/news/1238783

 

[casper]

So why has ogra advised against this deal?

 

[RiazHaq]

The All Pakistan Compressed Natural Gas Association (APCNGA) has finalised the modalities with Sui Northern Gas Pipelines Limited (SNGPL) to import liquefied natural gas (LNG) to provide cheap and environment-friendly fuel to motorists.

“Although, the government has allowed the association to import LNG but we have the plan to get it through SNGPL for which almost all modalities have been finalised with the company,” APCNGA Chairman Ghiyas Abdullah Paracha told APP on Wednesday.

He said 1,300 CNG stations operating in Punjab had so far shown willingness to get LNG through SNGPL’s distribution system and expressed confidence that the CNG sector would achieve ‘complete revival’ after the imported gas.

The chairman was of the view that there should be an effective mechanism to pass on maximum benefits to consumers of the recently-signed deal with Qatar in which the government got succeeded to import LNG at the competitive rate.

With regard to the proposed deal between the APCNGA and the SNGPL, Paracha said: “The LNG price for CNG sector should be market-oriented to run the sector effectively on long-term basis,” he added.

The APCNGA, Paracha said, had negotiated with the SNGPL as per vision of Prime Minister Nawaz Sharif that private sector should also come up for the LNG import, and promote the trend in industrial sector for creating an atmosphere of competitiveness.

He said the CNG was an environment-friendly fuel and claimed that it was 30 per cent cheaper as compared to petrol at the existing rates, adding that the CNG was being sold at Rs 53 per litre and Rs 82 per kilogram.

Answering a question, he said the purpose behind selling the CNG in litre was to do its comparison with petrol so that consumers could feel the difference. But, he said, efforts would be made to end the prevailing CNG price disparity in provinces and bring its prices to Rs 47per litre from Rs 53 in consultation with the government.

“Efforts of the association with regard to LNG import will be in the practical form, hopefully, in the current month, and the number of LPG-based CNG outlets will increase from 911 to 1,500 instantly,” he remarked. Replying to a question, Paracha said the APCNGA had applied for the marketing licence with Oil and Gas Regulatory Authority and it would be issued to the association soon.

http://www.pakistantoday.com.pk/2016/02/18/business/modalities-finalised-with-sngpl-to-import-lng-apcnga/