Senator questions plans to LNG import at too high price

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On a motion to discuss the import of LNG from Qatar Senator Farhatullah Babar raised questions about both the new LNG terminal at Post Qasim as well the price at which it is planned to be imported from Qatar. He said that as per media reports the government was considering to import LNG from Qatar at a price of $ 17.5 per mmbtu anad had indexed it to Brent Crude Oil. Shipping, storage and re-gasification, would make the cost of LNG around $19.50/mmbtu while pipeline tariffs and other local levies could make the cost about five times the price of domestic gas, he said. Further the oil-indexed natural gas prices will increase with rising oil prices.

This is too high considering trends in the global gas market due to ‘shale gas revolution’ pushing down the gas spot prices as natural gas supply increases. The trend in the global gas market is towards a divorce of oil and gas prices as is evident from races recently filed in the International Court of Arbitration. Under a long-term ‘take or pay’ agreement with Doha, Pakistan is bound to pay for the agreed quantity of LNG, whether it actually purchased it or no, he said. He said that the base price and price index, once inked in the contract cannot be changed. He called for renegotiating the price in a transparent manner. India has already set the benchmark in LNG pricing in the region when it struck a deal with the US at $10.50 in July 2013.

We should also include a price review clause, especially when international gas prices are nose-diving at the biggest natural gas hub. A study must be carried out by the Ministry of Petroleum and Natural Resources to assess the economic impact, when the domestic gas price is only $3-5 per mmbtu.

Finally, instead of just focusing on its LNG and pipeline contracts, Pakistan must foster a self-sustainable natural gas sector by unlocking shale gas, to generate employment, and heal an ailing domestic natural gas sector. He said that on Friday February 27 the Economic Coordination Committee (ECC) ignoring opposition by the Law Ministry approved the huge $2 billion LNG terminal services agreement. He said that while the ECC approved the LNG services agreement, the Auditor General of Pakistan had ordered a special audit of the same agreement on the ground that there are seven serious deviations in the contract from PPRA rules.