What's cooking between Qatar and Pakistan?
Senior Pakistani stakeholders tell Indrajit Sen what the 15-year LNG supply deal with Qatar means for the energy-craving nation and how Islamabad plans to boost exploration and production to meet energy requirements
So then, a long-term natural gas deal between Qatar and Pakistan now seems to be in place, after more than a year of dilly-dallying. As per the agreement signed between the two nations, Qatargas will supply the Pakistan State Oil Company Limited (PSO) with up to 3.75mn tonnes of liquefied natural gas (LNG) a year for 15 years, according to Pakistan’s Minister for Petroleum and Natural Resources, Shahid Khaqan Abbasi.
As part of the deal, which has been valued at a total of $16bn, Qatar is to meet about 20% of the energy-starved South Asian country’s gas requirements, and the first cargo is expected to dock at a Pakistani port as early as this month.
Soon after the formal agreement was sealed on February 10, during Pakistani Prime Minister Nawaz Sharif’s visit to the Gulf state, Abbasi told the Pakistani media that the deal was a ‘game-changer’ for his country, and that it would help save the country a billion dollars annually, once effective. From his side, Saad Sherida Al-Kaabi, chairman of Qatargas’ Board of Directors described the agreement as ‘a very important milestone in Qatar’s standing as a reliable energy supplier as it marks the first direct long term agreement between the two companies’.
Speaking to Oil & Gas Middle East on the sidelines of the 7th Gulf Intelligence UAE Energy Forum in Abu Dhabi in January, when negotiations between Qatar and Pakistan was (still) in its advanced stages, a couple of senior Pakistani officials expressed optimism about the (then upcoming) LNG deal and revealed certain behind the scenes details and discussions in Islamabad in the run up to the deal.
“In terms of LNG supplies, almost two years back, when we started a new administration in Pakistan (led by PM Sharif), one of our main focus was how to diversify getting energy into the country,” Jam Kamal Khan, Minister of State for Petroleum and Natural Resources, and Abbasi’s deputy, told this publication.
“So we initiated a plan of building a terminal facility. In one year’s time we made a terminal,” Khan said in reference to the Floating Storage and Regasification Unit (FSRU) at Elengy LNG terminal at Port Qassim in Pakistan’s largest city Karachi, the country’s first ever import terminal. In April 2015, the terminal received its first commissioned LNG cargo vessel from Qatargas. “In the same year, we had to foresee how to secure our volumes of supply,” he said, looking back at the time when PSO had entered into a spot buying deal with Qatargas, and was eyeing a deal to buy 1.5mn tonnes of LNG annually, with scope for the volume to increase over time.
“Then we started considering three strategies. The first one was going for a long-term contract with any of the sovereign oil and gas producing countries, at a government-to-government level. The second strategy was to go for an open bid supply from the market, which was again going to have a mid-range time period of three to five years. And then we had a plan of buying from the spot market too,” Khan revealed.
“We eventually went with a government-to-government deal with Qatar; Qatargas to be specific. Our talks and negotiations are very much in the final stages, and most probably in a few weeks’ time, we do expect to see signatures on the final deal,” Khan predicted almost a month before the deal.
Although not much details or figures have been made known by the parties about the pricing structure of the gas deal, Reuters quoted a government official in Islamabad saying that Pakistan had secured the LNG deal ‘at a competitive price’. “Due to the drop in oil prices, we were able to secure a very viable deal. It has been a very favourable deal to Pakistan,” the official was quoted as saying. In January, Pakistan backed out of a nearly $1bn deal to buy LNG from Royal Dutch Shell after receiving a lower price quote from Qatar, Reuters reported, citing its sources.
“The price structure has not been disclosed yet because of some clauses of non-disclosure in the agreement. It will be out soon,” Khan said. “We are looking at a long-term agreement with Qatar, so obviously the price structure would be a bit different. Spot prices tend to vary a lot, so we are not relying on that,” he said.
So why was Pakistan so keen on importing its much-needed LNG from Qatar, especially when Islamabad is already in talks with its neighbours Iran and Turkmenistan for building gas pipelines to buy gas? “I am very optimistic about the deal for the sheer reason that we have a natural alliance between Qatar and Pakistan. There’s a tremendous relationship between both the countries. Qatar is the nearest source of LNG supply to our country, so there were no two ways,” Zahid Muzaffar, chairman of the state-owned Oil & Gas Development Company Ltd. (OGDCL), and an advisor to the Petroleum and Natural Resources Ministry, said.
“For LNG, you need to have a firm supply and from the region, somewhere close by from where you can import LNG in the fastest possible time. That is why the preferred supplier was Qatar because it is in the region and close by,” Muzaffar told Oil & Gas Middle East.
Pakistan is in the process of bidding for a second floating LNG terminal or FSRU near to the one in Karachi, to be operational by mid-2017. “We are getting our second terminal and are in the process of pre-qualifying the bidders soon. But that is not enough for us. We are looking at building at least two more terminals,” Muzaffar said.
According to Khan, authorities are mulling another terminal in the strategic Gwadar port area in the southwest, and is in government-to-government basis talks with the China for getting a subsidiary company of the state-owned China National Petroleum Corporation or CNPC, on board for the project. Also in the planning stages, the minister said, was a pipeline project to deliver LNG from Gwadar to Karachi, also the financial hub of the country.
Pakistan – home to about 190mn people and growing – has over the recent years been suffering from severe electricity shortages, affecting not only the teeming millions of households, but also its industrial and other operations. Despite primarily being a natural gas producing nation, possessing fields with high reserves, the country has been unable to meet the gas requirements of its populace and industries, particularly the power sector, which relies on gas to produce 35-40% of the country’s total electricity.
“We are having a two-pronged strategy: We are planning on importing gas and at the same time we are very much focussed on developing the resources that we have in Pakistan. In that order, we have a very good structure in what we have explored in Sindh and Punjab, and we are vigorously exploring Balochistan and Khyber Pakhtunkhwa. A lot of discoveries are taking place in these provinces, but we are looking for big discoveries like the one which was done years back in Sui, Balochistan,” Khan said.
“We haven’t discovered anything big in Sindh or Punjab at the moment. However about 65% of Pakistan’s landmass has not been explored or surveyed at all. There is a big potential and we are very optimistic that we might find good reserves of oil and gas,” he said.
Muzaffar mentioned OGDCL, which is a Pakistani government-mandated exploration and production company, has ‘significant assets in the upstream sector’, and has joint ventures with international companies like Italy’s ENI, OMV, Hungary-based MOL Group, Chinese Group UEPL, BHP Billiton and Tullow Oil, PEL and Kuwait’s Kufpec, the only GCC-based company operating in Pakistan.
As the Pakistani government embarks on its ‘aggressive exploration’ campaign, it has plans to offer open bids to lure international oil and gas companies. The minister told the magazine that the government allocated 40 blocks last year through open bids, and this year intends to tender for about 20 more blocks all over Pak, revealing that “a lot of these blocks will be in Balochistan, Punjab, Sindh and Khyber Pakhtunkhwa, as well as some offshore blocks.”