Import of LNG: PLL likely to ink accord with SOCAR

The government is likely to allow Pakistan LNG Limited (PLL) to sign pact with Azerbaijani company M/s SOCAR/ SOCAR Trading for import of one LNG cargo monthly, sources close to Minister of State for Petroleum and Natural Resources told Business Recorder.

Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL) are importing Liquefied Natural Gas (LNG) under long-term LNG supply contracts to minimise gas demand supply gap under three pacts.

The first long-term agreement had been signed by PSO with Qatar Gas in 2015 at 13.37 per cent of price (slope of Brent) for five cargoes monthly for 15 years.

The second PSO-Qatar Gas agreement was inked in 2021 at 10.2 per cent of price (slope of Brent), for ten years, according to which Qatar Gas is to supply three cargoes monthly from July 22 to December 23 and four cargoes monthly from Jan 2024 to December 2032. PLL-Eni also signed agreement in 2017 at 12.05 per cent of price (slope of Brent) according to which Eni is to supply one cargo per month for 15 years.

In addition, PLL has been importing up to 3 LNG cargoes/ month through spot tendering conducted from time to time to meet seasonal peak demand.

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However, PLL has been facing considerable difficulties in procurement of spot LNG cargoes since June 2022, owing to exorbitantly high international LNG prices, as well as, Pakistan’s downgraded credit rating. PLL floated tenders for procurement of LNG on spot basis for delivery in July to September 2022; however, no bid was received from LNG suppliers. PLL also floated a midterm tender for supply of 72 cargoes (1 cargo/month during 2023-28), which also didn’t attract any bidder.

Meanwhile, PLL has also been exploring availability of LNG volume through Government to Government (G2G) agreements with different countries. In this regard an Inter-Government Agreement (IGA) has already been signed between the Government of Pakistan and the Government of Azerbaijan on February 28, 2017 for cooperation in the field of energy, and PLL and State Oil Company of Azerbaijan Republic (SOCAR), SOCAR Trading and its subsidiaries have been nominated to negotiate necessary contractual details on LNG project.

In this regard SOCAR has offered LNG through a Framework Agreement under the G2G arrangement. PLL has requested for approval of Framework Agreement, having following salient features: (i) initial one year term extendable to another one year; (ii) one LNG cargo per month to be offered by SOCAR 45 days prior to the start of the relevant delivery windows; (iii) each offer for the cargo will have a set validity period during which PLL may accept the offer; (iv) price shall be offered in USD/ MMBTU for each cargo,45 days prior to the relevant delivery window; (v) cargo quantity- 3,200,000 MMBTU 5 % ; (vi) payment term within days following PLL’s receipt of the invoice; (vii) PPL to issue LC from local bank(s). LC confirmation charges shall be on sellers’ account; (viii) port charges for SOCAR capped at USD 500,000 whereas all PQA costs, including taxes, shall be defined as port charges; (ix) each offer will include the applicable demurrage rate expressed as a fixed amount in USD per day and pro rata for each part of a day; and (x) PLL and SOCAR will sign a confirmation notice, at the time of the offer for any cargo is accepted by PLL.

ECC of the Cabinet on June 31, 2016 had constituted an LNG Price Negotiation Committee (PNC) to negotiate the LNG prices and other important aspects including review of draft agreements related to LNG imports under G2G framework. The PNC considered the draft framework agreements in a meeting held on November 30, 2022 and agreed on execution of the Framework Agreement after approval of Federal Government. PNC also advised PLL to formulate a mechanism to evaluate the price offered as well as LC confirmation charges for each cargo.

The proposed Framework Agreement does not contain any specific pricing formula and the LNG price will be quoted for each cargo by SOCAR in USD/ MMBTU. PLL will evaluate the offered price in comparison with the prevailing international price, as well as, consult downstream customers (power sector) to ensure affordability.

PLL has not received any bids against recent tenders and has also been facing LC issues and cancellation of the term cargoes. Under the given circumstances’ PLL may execute the Framework Agreement with SOCAR as there are no financial obligations or take or pay commitments. However, LNG may only be procured under the said agreement if an attractive price is offered or expensive LNG is desperately required as a last resort.

In view of current situation, Petroleum Division has proposed that ECC may allow PLL to execute the proposed Framework Agreement with SOCAR/ SOCAR Trading. Since the validity of price offered by SOCAR will be less than 24 hours, PLL BoD may accept or reject the LNG cargoes based on the suitability of the price.

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