ISLAMABAD: In response to Pakistan’s declining liquefied natural gas (LNG) demand, Qatar Energy has agreed to divert 24 LNG cargoes in 2026 under a net proceeds differential mechanism, according to a report submitted to the Economic Coordination Committee (ECC).
Under the agreed formula, Pakistan will bear the loss if Qatar sells the diverted LNG cargoes in the open market below the contracted price, with the differential passed on to domestic LNG consumers. The federal government will issue policy guidelines to the Oil and Gas Regulatory Authority (Ogra) to implement this framework.
According to officials, Pakistan State Oil (PSO) informed the government that Qatar Energy had shown flexibility in applying the net proceeds differential for the 24 cargoes scheduled for 2026.
Currently, Pakistan imports nine LNG cargoes per month from Qatar and one monthly cargo from Eni under long-term supply agreements. However, due to reduced gas consumption by power producers and a broader downturn in industrial demand, the country is facing what officials describe as a severe case of “demand destruction.” This has left Sui Northern Gas Pipelines Limited (SNGPL) with surplus LNG that cannot be absorbed domestically.
To manage the surplus, the Petroleum Division and Pakistan LNG Limited (PLL) earlier collaborated with Eni to sell 11 cargoes in 2025 under similar net proceeds terms, while five cargoes from Qatar were deferred for the same year. Projections indicate a continuing surplus of around 177 cargoes between July 2025 and December 2031, averaging 24 excess cargoes annually.
Following these developments, the Petroleum Division presented a summary to the ECC on August 19, 2025, proposing several options to address the situation, including:
- Mutually reducing surplus cargoes without compensation.
- Deferring LNG deliveries and extending the contract beyond 2031.
- Applying the net proceeds mechanism for select cargoes, with the financial impact passed to end consumers.
- Amending existing contracts to designate LNG procurement for onward sales through Sui companies.
After ECC’s authorization, a high-level delegation—comprising the petroleum and privatisation ministers, senior officials from the Petroleum Division, PSO, and SNGPL—visited Doha from August 25–27, 2025, to finalize the arrangement with Qatar Energy.
Following multiple stakeholder meetings, it was agreed that the net proceeds differential option would first be applied for 2026, with further decisions contingent upon the results. PSO officially communicated its LNG estimates to Qatar Energy on September 30, 2025, and requested the adoption of the net proceeds mechanism for 29 cargoes. Qatar later confirmed its willingness for 24 cargoes under this arrangement.
Additionally, the net proceeds clause will be extended to 21 Eni cargoes—11 in 2026 and 10 in 2027—to further align supply with Pakistan’s reduced LNG demand.
According to officials, Qatar Energy remains committed to exploring mutually beneficial solutions for managing the differential mechanism, ensuring continued cooperation amid evolving market dynamics.
Story by Zafar Bhutta
