By Asad Cheema
ISLAMABAD: The agreement between Pakistan State Oil (PSO) and M/s Gunvor, for supply of 100 MMCFD Liquefied Natural Gas (LNG) has reportedly expired, due to which quantity of firm supply of LNG has reduced, well-informed sources in Petroleum Division told The Daily Mail.
“One medium term 100 mmcfd LNG supply contract of Pakistan State Oil (PSO) with Gunvor expired on December 31, 2020 and now 500 mmcfd firm long-term LNG supply contract of Qatargas is available with PSO whereas two medium to long-term contracts of 200 mmcfd are available with Pakistan LNG Ltd (PLL), making the cumulative firm LNG supply of 700 mmcfd,” sources added.
Petroleum Division in consultation with PSO and PLL is exploring various options which include term contract of 200 mmcfd based on minimum firm demand available in the system while pricing of LNG contract would be based on Japan Koren Marker (JKM) benchmark instead of Brent Crude. The spot purchases by PSO and PLL are being streamlined considering the option of tendering by either entity or by both separately for securing better spot purchase prices. However, the spot purchases would require Independent Power Producers (IPPs) and Industry (Fertilizer Plants) to adhere to strict ordering at least 4 months in advance and once the orders are placed pursuant to their demand, then off-take of imported LNG has to be on take or pay basis so as to avoid triggering of operational as well as financial constraints on the supply chain.
The existing LNG terminals – Engro Elengy Terminal Ltd (EETPL) and Pakistan Gas Port Company (PGPCL) – are contemplating enhancing their terminal capacities under the Third Party Access Arrangement without any financial obligation or risk to GoP. M/s EETPL is planning to replace the existing LNG Floating Storage Re-gasification Unit (FSRU) to add 150 to 200 mmcfd capacity. However, pursuant to the Federal Cabinet decision regarding negotiations with LNG terminal owners may be pended till finalization of a NAB inquiry into the LNG terminal matter, barring negotiations for any available capacity with the EETPL, both parties are unable to proceed with negotiations and finalization of a GTA (gas transportation agreement while M/s Excelerate, the owner of EETPL FSRU, is following up with the Government to resolve the issue.
The sources said pursuant to the Federal Cabinet’s decision of July, 2019 regarding establishment of LNG Terminals on BOT basis at Port Qasim (PQ) Karachi, provisional Letter of Intent (LoI) along with project guidelines was issued to five private sector companies by PQA.
In their response, two firms, namely M/s Tabeer Energy (Pvt.) Ltd, and M/s Energas (Pvt) Ltd submitted acceptance of Provisional Lol and a project guidelines along with partial concession fee of $ 2 million (non-refundable) each with the condition that both will pay the remaining fee of $8 million (non-refundable) upon execution of Implementation Agreement (IA) with PQA.
Subsequently, based on the recommendations of the consultant, PQA in May, 2020 issued final LoI along with a draft IA to both the private firms, however, both the firms sought extension in acceptance date of final Lol Citing issues in respect of site NOCs/clearance, pipeline capacity allocation and accordingly the extensions were further allowed in view of Covid-19.
Later on, based on the Federal Cabinet’s decision of September, 2020, Petroleum Division issued provisional pipeline capacity letters to both private firms / LNG terminal developers in October, 2020. Oil and Gas Regulatory Authority (Ogra) has since issued provisional licence for construction of LNG terminal to both companies while Ogra also recently issued licence for sale of natural gas to both the companies after concluding public hearings as required under the law.
Meanwhile, with respect to allocation of a tie-in point, SSGCL, besides providing coordinates for designing, has also initiated the process of acquiring (lease) the required piece of land, i.e., 11 acres from Pakistan Steel Mills Ltd (PSML). Both the LNG terminal developers have been provided a provisional capacity of 300 mmcfd each in the existing 17Km pipeline from PQA (LNG terminals) to Pakland (SSGCL’s injection point) subject to signing of an Access Arrangement Agreement (AAA)/Gas Transportation Agreement (GTA) while capacity allocation in the planned pipeline i.e., North-South Gas Pipeline, can also be made subject to completion of terminals and construction of the pipeline. Presently, upon commissioning of the 17Km pipeline segment, 600 mmcfd pipeline capacity is available and the same can be further augmented by 600 to 800 mmcfd depending on the systems’ requirement.
The following progress in respect of Pak Stream Pipeline (North-South Gas Pipeline) is said to have been made: (i) Inter-Governmental Agreement (IGA) with Russia amended; approval in process;(ii) land survey and route finalization in process; defence clearance awaited ;(iii) land acquisition collectors notified under provincial Land Acquisition Act;(iv) physical construction can start in second half of 2021; time 2.5 years and ;(v) capacity will be 1.6 bcfd; accommodates new and existing expansion of LNG terminals.
This decision of the federal cabinet is regarding negotiations with the LNG terminal companies for rationalizing the excessive returns being earned by them, and does not bar the implementation of the earlier ECC decision regarding TPA. PGPCL is planning to test the enhanced capacity of upto 750-900 mmcfd in the existing FSRU in March, 2021. However, there is a dispute pending in the London Court of International Arbitration (LCIA) in respect of termination of services agreement between PGPCL and LNG Terminals Ltd (merged entity with PLL) pursuant to the provisions of LNG Services Agreement barring SSGCL from negotiating any arrangement with PGPCL.
On the directions of the Cabinet Committee on Energy (CCoE) of April 2, 2020, a legal opinion was obtained from the firm appointed by the AG for the litigation on PGPCL, indicating that TPA (third party administrator) can be provided without compromising the underlying litigation.
The sources further stated that during the tenure of the last Government, the establishment of a fourth RLNG-based power plant at Trimmu was initiated and security package including signing of Implementation Agreement (IA), Power Purchase Agreement (PPA), Gas Supply Agreement (GSA) and Reimbursement Agreement (RA) were approved in line with the existing package with the three RLNG-based Government Power Plants (GPPs). However, in view of the reluctance of the Power Division to agree upon a minimum guaranteed power purchase under the Annual Power Purchase (APP) and execution of 185 mmcfd take-or-pay Gas Supply Agreements, Petroleum Division was advised to sell 150 mmcfd RLNG to Karachi Electric (KE) to diffuse the financial risk associated with PLL’s medium-long term firm LNG import contracts of 200 mmcfd. PLL has finalized the commercial terms for this supply with KE and is planning to execute the GSA with KE based on supply of 150 mmcfd from its new unit which is expected to be in commission in December, 2021 while initial RLNG off-take will commence in April-May 2021. PLL is also executing a Gas Transportation Agreement (GTA) with SSGCL.
Recently, Ogra granted licence to KE for construction of a dedicated pipeline of 1.5 km for augmentation of adequate supplies and pressures. Petroleum Division is also pursuing the restructuring of LNG import/supply chain and as a first step the merger between Pakistan LNG Terminals Ltd and PLL has been made effective January 01, 2021.
The sources said the future structure of the merged entity, i.e., PLL, is also being reviewed which is currently working as subsidiary of GHPL. The merger of entities will eliminate the separate margins available under the existing RLNG pricing structure and thereby reduce the overall RLNG price for consumers.
Petroleum Division wants PSM to facilitate transfer of 11 acres to SSGC urgently, and set off land lease value against payables to SSGC and SSGC be advised to sign required agreement(s) with PLL and KE for RLNG supply to KE’s new unit while ring-fencing old KE receivables’ issue related to indigenous gas supply.
Petroleum Division has also proposed that Deputy Chairman Planning Commission (DCPC) be directed to immediately issue the committee report on fee-sharing for use of private excess capacity, pending for 4 months. According to the sources, cabinet’s decision regarding no negotiations with Engro terminal needs to be clarified that it does not preclude signing a GTA for use of private excess capacity by Engro. PQA/MOMA to confirm that QFlex vessel can be brought to PGPCL (adequate berthing basin) which Qatar Petroleum (QP) has agreed to undertake provided adequate berthing facility is available.
