PAKISTAN-QATAR IMPORT OF LNG

SUBMITTED BY: MUHAMMAD NAEEM FURQAN

SUBMITTED TO: MAM ROBINA KOUSAR

(Source BP Statistical Review of World Energy 2013) PAKISTAN-QATAR IMPORT OF

 LNG

SUBMITTED BY: MUHAMMAD NAEEM FURQAN

Z

Table of Contents
SUBMITTED TO: MAM ROBINA KOUSAR
Introduction.................................................................................................................................................2
Historical Background..................................................................................................................................2
LNG Import Project Structure......................................................................................................................3
LNG Procurement........................................................................................................................................3
Ownership & Operation of the LNG Terminal..............................................................................................4
RLNG Marketing & Transportation...............................................................................................................6
Pricing of RLNG............................................................................................................................................6
Government Guarantee...............................................................................................................................7
Freedom to Participate in the LNG Business................................................................................................7
Technical Codes and Standards....................................................................................................................7
Shipping of LNG...........................................................................................................................................7
Other Permits and Licenses.........................................................................................................................8
Global Trends in LNG...................................................................................................................................8
Table 1: LNG Imports in Asia..................................................................................................................8
Table 2: LNG Prices from Qatar (Source: Argus, 2013)..........................................................................9
Table 3: Argus - Volume IX, Issue 12 - December 2013 - Argus is a leading provider of price
assessments, business intelligence and market data for LNG & LPG....................................................10
Economic Analysis of LNG..........................................................................................................................11
Table 4: Major Gas Fields in Pakistan with Price in $/MMBtu.............................................................11
Table 5: LNG Price and Energy against Rupees....................................................................................12
Table 6: Comparison of Annual Savings................................................................................................12
References.................................................................................................................................................13
Bibliography...............................................................................................................................................13

Table of Figure
Figure: 1 Primary Energy Consumption (2012-13)......................................................................................2
Figure: 2 Global LNG Trade Movements....................................................................................................8
(Source BP Statistical Review of World Energy 2013)................................................................................8
Introduction
Pakistan is during a severe energy crisis that largely stemmed from a
mismanagement of natural resources in the country. Weak regulatory and pricing
mechanisms in the natural gas sector have
led to huge disparities between demand and
supply.
At present, demand of natural gas is
estimated at around 8 Billion Cubic Feet LPG Electricity
(BCF) against a total supply of 4 BCF, 1% 16 %
creating a shortfall of 4 BCF.1 However,
there is still a large dependency on natural Coal Gas
10 %
gas in the primary energy consumption, 44 %
with 44% of primary energy needs met
through natural gas, as seen in Figure 1. Oil
29 %
27.5% of total natural gas is consumed in
the power sector, while the fertilizers,
industries, transport, and domestic sector Figure: 1 Primary Energy Consumption (2012-13)
also need natural gas. It is also estimated
that gas accounts for 65% to 70% in the total fuel and energy component of textile sectors cost
of production. The profit margins, which are already dwindling may be further squeezed and dent
the profitability of the producers in the international market, and the purpose of granting duty
free market access to the European Union under the Generalized System of Preference (GSP).
Pakistans policy for the sustainable development of the energy sector, including the provision of
reliable and competitively-priced energy is based on the following objectives:
(a) Optimization of the primary energy mix, based on economic and strategic considerations;
(b) Maximizing the utilization of indigenous energy resources;
(c) Enhancing private sector participation in the energy sector by strengthening the regulatory
framework and institutional capacity;
(d) Developing energy infrastructure;
(e) Developing human resources with emphasis on energy sector-specific technical skills and
expertise

Historical Background
Pakistan and Qatar have inked a historic agreement in Doha for the provision of Liquefied
Natural Gas (LNG) to meet the growing energy needs of Pakistan. The LNG supply contract was
signed in the presence of the Prime Minister of Pakistan, Mian Nawaz Sharif and the Emir of the
State of Qatar, Sheikh Tamim bin Hamad Al-Thani. The deal will be executed between Qatar gas
Operating Company Limited (Qatar gas) acting as the Seller while Pakistan State Oil Company
Limited (PSOCL) will be acting as the sole LNG buyer for Pakistan keeping in view the
company's international credibility and expertise in the energy supply chain.
Because of this momentous deal, Pakistan will be able to meet the supply demand deficit of
natural gas being faced by the country, replace usage of expensive fuels like furnace oil and
diesel in power plants with a cheaper and more environmentally friendly fuel option, revitalize
the billion Rs CNG and fertilizer sectors and reassure the livelihood of thousands of people. The
introduction of LNG into the power system is also expected to help reduce the cost of electricity
generation and provide greater relief to the masses.

LNG Import Project Structure

An LNG import project may be structured under one of the following alternatives:
(a) Integrated project structure, under which a private or public-sector party, joint venture, or
consortium (hereinafter referred to as LNG Developer) is responsible for purchasing LNG
supplies, transporting them to its LNG import terminal (comprising of receiving, storage and re-
gasification facilities) and supplying RLNG to the domestic market and/or for its own use. The
LNG Developer would enter into a Gas Sales and Purchase Agreement (GSPA) directly with a
Government-designated buyer, gas utility or any customers (hereinafter referred to as RLNG
Buyer(s)); or (b) Unbundled project structure, under which:
i. A Government designated buyer, gas utility, any consumer or any LNG supplier
(hereinafter referred to as LNG Buyer(s) would directly import the LNG under a
LNG Sale and Purchase Agreement (SPA) either on a delivered ex ship (DES)
basis, or a free-on-board (FOB) basis, or C&F basis.

ii. For FOB purchase, the LNG Buyer would in addition, enter into an agreement
with a shipping company to transport LNG to the receiving terminal.
iii. The LNG Buyer(s) would enter into an agreement with the LNG Terminal Owner
and/or Operator (hereinafter referred to as the LNG TO/O) for the provision of
LNG receiving, storage and re-gasification services at its terminal under a tolling
agreement.

LNG Procurement
An LNG Developer or LNG Buyer, will be allowed to import LNG in accordance with
applicable import laws, rules, and regulation. While issuing license to an LNG
Developer or RLNG Seller, the Oil, and Gas Regulatory Authority (OGRA will consider
Government policy guidelines and will adopt following criteria to ensure sustainability
of LNG chain:
(a) For the LNG Developer, at least one member of the consortium will be required to
have technical and commercial experience along the LNG supply chain.
 (b) LNG Developer or LNG Buyer /RLNG Seller will provide evidence of sufficient
purchase commitment (in the form of a HOA) from end users for a minimum
volume of RLNG sufficient to support the terminal investment and the potential
for further sales, if necessary, to cover the full contractual LNG purchase
commitment.
(c) Notwithstanding the above, LNG imports can also be made on spot purchases
based on market and commercial considerations.
(d) For avoidance of any doubt, it is stated that a license will not be required for
import of LNG by LNG Developer and LNG Buyer.
Procurement of LNG by the LNG Buyer(s) will be undertaken through one of the
following approaches:
(a) Direct negotiations with one or more LNG suppliers for supply of LNG for a
reasonable time to be determined by OGRA; or
(b) International competitive bidding for the supply of LNG for a reasonable time to
be determined by OGRA; or
(c) Direct purchase from the LNG spot market based on market and commercial
considerations on a competitive basis, excluding supply to public sector gas
utilities.
If procurement of LNG is undertaken by a public-sector entity, the Government may
authorize the entity to adopt the direct negotiation approach with a group of LNG
suppliers if the demand-supply dynamics of LNG require this approach to be adopted.

Ownership & Operation of the LNG Terminal

The LNG Developer or LNG TO/O will obtain a license to design, construct, operate and own
a LNG terminal from OGRA under the Oil and Gas Regulatory Authority Ordinance, 2002
subject to satisfying the following criteria:
(a) Technical: At least one member of the consortium of LNG Developer or LNG TO/O
should have experience in developing and operating a liquefaction plant or a
regasification terminal. The LNG terminal will be constructed based on technical
standards as prescribed by the OGRA from time to time, in consultation and
approval of Department of Explosives, including internationally acceptable
industry technical standards as stipulated in Appendix-1.
(b) Financial: The LNG Developer or LNG TO/O consortium (on a several or joint and
several basis) should have liquidity, revenues, net income, and net worth above
prescribed minimum thresholds (to be set by OGRA taking into consideration the
 financial obligations associated with the development and operation of the LNG
import terminal).
(c) Health, Safety & Environmental (HSE) Standards:
i. The LNG Developer, LNG TO/O, or LNG Buyer, will ensure that the project
complies with World Bank HSE Guidelines, Pakistans Environmental
Protection Act 1997 rules, regulations and guidelines made thereunder,
National Environmental Quality Standards, Pakistans health, environment,
and safety standards and is consistent with the best international LNG
industry practices.
ii. The LNG Developer or LNG TO/O will undertake a comprehensive
environmental impact assessment of the design, construction and operational
aspects of the project including impact assessment of shipping associated
with the project, in accordance with international standards and practices.
The studies and approvals required at the planning, construction,
commissioning, and operating phases are defined in the Pakistan
Environmental Protection Act, 1997.
iii. All LNG terminals shall be surrounded by safety zones which shall meet the
industry standards set forth in safety codes of the National Fire Protection
Association of USA and as per the risk assessment studies to ensure
protection of neighboring communities and shipping traffic.
(d) Site approval: The site (either land based terminal or offshore terminal of any
type) for setting up LNG Developer or LNG TO/O shall select an LNG terminal
considering the following factors:
i. Existing and projected population and demographic characteristics of
the location;
ii. Existing and proposed land use near the location; iii. Physical
aspects of the location;

iv. Medical, law enforcement and fire protection capabilities near the location
that can cope with a risk caused by the facility;
v. Exclusion zone distances from the terminal to property and population as per
international standards are complied with;
vi. Proximity to existing gas infrastructure and market;
vii. Need to encourage remote sitting;
viii. Any other significant community concerns; and
ix. Environmental considerations.
 In applying for the license, the LNG Developer or LNG TO/O will have the onus of
demonstrating compliance with the above criteria through risk assessment and simulation
studies.
Port Authorities will convey their decision on acceptance of site within one month of
submission of NOC from SEPA, QRA study and navigational simulation study.
The licensee shall:
(a) ensure delivery of LNG on fast track basis.
(b) furnish guarantee against it commitment.
In case of licensees failure to deliver LNG by stipulated date its right to Third Party Access
will be subject to cancellation / review by OGRA.

RLNG Marketing & Transportation

An LNG Developer or LNG Seller will obtain a license to market and sell RLNG in the domestic
market including in the areas covered by the gas pipeline network of SSGC and SNGPL from
OGRA under the provisions of OGRA Ordinance, 2002 and subject to the terms and conditions
of the licenses issued by OGRA to SSGC and SNGPL.
Subject to para 6.4 below, an LNG Developer or LNG Seller will be required to obtain a license
to construct and operate gas pipelines from OGRA under the provisions of the OGRA Ordinance
2002.
Parties interested in the local small-scale production, transportation and distribution of LNG
produced from domestic gas, for example through LNG trucks will be required to obtain a
license from OGRA.

Pricing of RLNG
I. With an integrated or an unbundled approach, RLNG will be procured by gas utilities /
RLNG Buyer(s) in the public / Private sector for Medium / Long Term from a LNG
Developer or RLNG Seller who offers the lowest price at a designated point of delivery.
This price will be the input price to the weighted average cost of gas in Pakistan as per
para 6.3(a) above.
II. In case LNG/RLNG is procured by the public sector, the price of RLNG will be determined
by the OGRA at the terminal flange based on (I) the LNG purchase price; (ii) the direct
and indirect costs of transportation, storage, and regasification incurred by the LNG
Developer / TO/O, and (iii) a reasonable return on the investment made by the LNG
Developer / TO/O.
III. RLNG can also be procured by private sector, by public sector or in public private
partnership based on lowest price demonstrable to the regulator.
Government Guarantee
The Government shall not provide any guarantee for LNG import projects. However,
Government support may be considered, if needed, to secure long term, LNG supplies to
Pakistan.

Freedom to Participate in the LNG Business

All interested parties who meet the criteria provided herein will be free to participate in any
segment of the LNG value chain.

Technical Codes and Standards

I. The design, construction and operation of the LNG import project facilities will comply
with internationally recognized and proven codes and standards for LNG installations
including those specified in Appendix-1.
II. No second-hand or refurbished LNG plant, equipment, machinery, or part thereof will
be installed at the LNG terminal or at associated facilities. In case of offshore LNG
terminals, used LNG ships utilized for either conversion into a floating LNG terminal or
for storage of LNG in association with an offshore LNG terminal will be allowed by OGRA
if the vessels maintain their classification status certified by one of the IACS member
classification societies as approved by Director General Port and Shipping and hold all
valid class and flag state statutory certificates.
III. OGRA will issue a license for an LNG terminal based on a suitable, tested and proven
internationally acceptable technology for the design, construction, and operation of the
LNG terminal and associated facilities.
IV. Following receipt of a complete application, covering all relevant aspects of the
proposed LNG project including a comprehensive feasibility study undertaken by a
project proponent through a consultant of international repute, OGRA will undertake a
full review and audit of the proposed project at the cost of the project proponent
(including the cost related to outsourcing of the expertise, if necessary) and take a
decision regarding issuance of a license or rejection of the application within 90 days.
V. All LNG ships entering Pakistans maritime zones shall comply with International
Maritime Organizations regulations.

Shipping of LNG
All LNG ships transporting LNG to Pakistan will have to be registered with an acceptable
international classification society.
Other Permits and Licenses
The LNG Developer, LNG TO/O, LNG Buyer or RLNG Seller will have to obtain permits and
licenses from Government departments such as Ministry of Defense, Naval Headquarters, Port
Authorities, Environmental Protection Agency, Chief Inspector of Explosives, and provincial and
local government agencies, as per applicable laws, rules, and regulations.

Global Trends in LNG

Looking at the global gas market, the trend is that Liquefied Natural Gas (LNG) is increasingly
becoming more competitive in comparison to pipelines2. The figure below shows major trade
movements of LNG, and the volume of LNG movements, in billion cubic meters (bcm).
Following this global trend,
the Government of Pakistan
is seeking LNG imports, but
the question that remains is
at what price? Pakistan was
leaning towards Qatar to
import 500 MMCFD4, and
initial quotes of price were
around $17/MMBtu,
excluding cost of
Figure: 2 Global LNG Trade Movements
regasification, shipping, and (Source BP Statistical Review of World Energy 2013)
other logistical concerns.
The Ministry of Petroleum
and Natural Resources
(MPNR) aims to increase the
volume imported by 2BCF/day in the next two years5. Pakistan seeks to import 2BCF/day, which
would amount to about 730BCF/annum. This means that Pakistan would be the third highest
consumer of LNG from Asia-as shown in table below:
Table 1: LNG Imports in Asia
LNG Import in Japan South- Pakistan India China Taiwan Thailand

Year 20126 Korea

BCF Annum 4194 1754.41 730 723.65 706 596.57 49.42
 LNG Imports in Asia
596.57

706
49.42

723.65

4194

730

1754.41

Japan Korea Paki sta n Indi a Chi na Ta i wan Tha i l and

A pertinent fact to note in this context is that Asia makes 68% of the market share of LNG
imports, and the share is continuing to increase. In the future, Asia must make the most of its
significant market share and employ collective bargaining power towards creating a new natural
gas pricing hub in Asia. Pakistan, with its rising natural gas demand and energy requirements
must play a leadership role through skillful diplomacy and the use of acumen towards a natural
gas pricing hub that reflects the realities of the global gas market.
However, although Asia makes up a significant share of the LNG, it has not been able to
influence LNG pricing from Qatar significantly. Though it has varied from country to country,
and the pricing mechanism is largely dependent on the prevailing market price in the region.
The export-landing price of LNG from Qatar to various countries is shown in the table below,
reflecting a precedent of low LNG price of long-term agreements:

Table 2: LNG Prices from Qatar (Source: Argus, 2013)

LNG Prices from Qatar Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13

Taiwan 12.6 13.04 11.33 12.78 10.9 12.62 11.84

India 11.66 11.68 10.48 11.05 10.97 10.61 11.47

 LNG Prices from Qatar (Source: Argus, 2013)
13.5
13.04 13.04
13 12.78 12.78 13-Ja n
12.6 12.62 12.6 12.62
13-Feb
12.5
13-Ma r
12 11.84 11.84 13-Apr
11.5 11.33 11.33 13-May
10.9 10.9 13-Jun
11 13-Jul
10.5
10
9.5
Ta i wan Indi a
Indias LNG price from Qatar between the time period of October 2012 to July 2013, it has
ranged between $10-12/MMBtu, and the price that did not rise to more than $11/MMBtu in
2013.
Although Qatari LNG prices remained high, theres a significantly low drop in prices with other
sellers as indicated by the LNG landing price to China, as seen in the table below. Prices ranged
from as low as $3.2/MMBtu to $9.81/MMBtu, depending on the time and the seller.

Table 3: Argus - Volume IX, Issue 12 - December 2013 - Argus is a leading provider
of price assessments, business intelligence and market data for LNG & LPG
LNG Price Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct
Landing Price in 13 13 13 13 13 13 13 13 13 -
China 13
Seller- 3.32 3.25 3.25 3.32 3.56 3.95 3.49 3.22 3.37 3.2
Australia
Seller- 4.13 4.11 4 4.03 3.89 3.91 4.02 3.89 3.9 3.88
Indonesia
Seller- 7.84 7.7 8.23 8.17 8.02 7.96 8.02 7.92 9.81 8.83
Malaysia
 Argus - Volume IX, Issue 12 - December 2013
10

9
13-Ja n
8 13-Feb
13-Ma r
7 13-Apr
6 13-May
13-Jun
5 13-Jul
13-Aug
4
13-Sep
3 13-Oct

0
Sel l er-Austra l i a Sel l er-Indones i a

Economic Analysis of LNG

The price of LNG may be the single biggest factor impacting economic activity in
Pakistan. A look at the major gas fields of Pakistan (see table 1), constituting almost 85% of total
production shows that domestic gas was no more than $4.78/MMBtu.
Table 4: Major Gas Fields in Pakistan with Price in $/MMBtu
Gas Field Sui Zamzama Qadirpu Mari Bhit Sawa Uch Manzalai Kandhko
r n t

MMCF/day 562 507 496 495 385 317 185 169 164

$ per 2.02 4.36 2.80 0.74 4.78 4.45 3.92 2.87 2.11
MMBTU

In fact, Liquefied Natural Gas (LNG) would only be a viable option for Pakistan if it were to cost
less than USD 12/MMBTU. However, media reports and statements from the Ministry suggest a
price $17 per MMBTU for Qatari LNG. Additional costs of re-gasification and charges of
SSGPL & SNGPL and other taxes will likely push up its price to not less than USD 18
/MMBTU. The most compelling argument offered by the Ministry in favor of buying LNG has
been that it is a cheaper fuel for electricity, but at anything more than USD 14/MMBTU, LNG
loses its competitive advantage against oil, as illustrated by some basic calculations on LNG and
Residual Fuel Oil (RFO) in the table below. It is in terms of the British thermal unit (Btu) which
is a basic measure of thermal (heat) energy).
 Table 5: LNG Price and Energy against Rupees
LNG Price 10 11 12 13 14 15 16 17 18 19 20
$/MMBTU

Energy Against 952 866 794 733 680 635 595 560 529 501 476
One Rupee

It is established that Rs. 1 of Furnace Oil can release 630 units of energy (at a spot rate USD
606.50/Metric ton) compared to Rs. 1 of LNG, that will garner 529 units of energy (at a rate of $
18 /MMBTU), with an 84% energy content price gap. The main argument for importing LNG is
its price competitiveness against oil, but that loses all validity in the light of the above data, as
natural gas for price above $14/MMBtu will lose its competitive edge on price against oil. A
price more than $14/MMBtu will present a significant burden on the national exchequer. If LNG
is procured at $11/MMBtu, Pakistan may be able to save up to $7.11 billion per annum, if
demand is taken as a constant at 2BCF/day:
Table 6: Comparison of Annual Savings

Reduction of Price from $ 20/MMBtu (USD or 7.00 8.00 9.00 10.00 11.00
$)

Annual Saving in Billion USD 5.11 5.84 7.11 7.70 8.03

Bringing the LNG price down to a single unit would mean a saving of around $ 8.03 billion
annually.

References
[ CITATION OGR11 \l 1033 ]
[CITATION Ars13 \l 1033 ]

[CITATION Pak16 \l 1033 ]

[ CITATION PSO15 \l 1033 ]

[CITATION Min \l 1033 ]

[ CITATION WIT15 \l 1033 ]

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http://www.mpnr.gov.pk/policiesDetails.aspx

OGRA. (2011). Retrieved from GOVERNMENT OF PAKISTAN, Ministry of Petroleum & Natural Resources:
http://www.ogra.org.pk/images/data/downloads/1409825715.pdf

Pakistan Defence. (2016, 08 07). Retrieved from Pakistan Defence Forum:

https://defence.pk/pdf/threads/lng-import-statistics-and-figures-for-last-one-year.443129/

PSO. (2015). Retrieved from psopk.com: http://www.psopk.com/en/media-center/email-

newsletter/pakistan-and-qatar

SDPI. (2012-2013). Retrieved from Sustainable Development Policy Institute:

https://www.sdpi.org/publications/files/Policy%20Paper%20LNG.pdf

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http://wits.worldbank.org/CountryProfile/en/Country/PAK/Year/LTST/TradeFlow/Import/Partner
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