DOHA - Pakistan and Qatar yesterday inked an agreement for supply of around one billion dollars liquified natural gas to Pakistan annually to help the country meet its energy shortfall.

The agreement on long-term LNG sale and purchase was signed during the visit of Prime Minister Nawaz Sharif to Qatar. Petroleum Minister Shahid Khaqan Abbasi and Qatargas Board of Directors Chairman Saad Sherida Al-Kaabi signed the agreement at a ceremony at Diwan-e-Emiri.

Under the agreement, the price for each LNG cargo in a particular month has been agreed at 13.37% of Brent where its value is average of the preceding three months.

The Qatar Liquified Gas Company Limited would sell LNG to Pakistan State Oil Company Limited for a period from 2016 to 2031.

The annual contract quantity has been agreed at prorate of 2.25mt for 2016, Q1: prorate of 2.25mt and for 2017 Q2 to 2031: 3.75 mtpa.

The long-term LNG SPA also provides for annual upward and downward flexibilities up to three LNG cargoes per contract year. Downward flexibility can be accumulated for two contract years.

The payment terms state that the PSO would make payment 15 days after completion of unloading. Pakistan is currently facing a severe shortage of natural gas for its electricity generation and industrial use and estimates put the supply-demand gap at around 2-4 bcfd.

Later, the petroleum minister told media persons that the import of LNG from Qatar would help Pakistan meet its energy needs, besides boosting Pakistan-Qatar ties.

He said LNG from Qatar was being purchased at the best available rates and would help start production of 2000MWs of electricity from power houses that were currently not operational.

The petroleum minister said under the agreement Qatar would provide worth around $1 billion LNG annually to Pakistan that would meet 20 percent requirements of the country. He said the deal would help the country get out of its energy crisis and provide 35 million tons of LNG. He said it would also help provide gas for fertilizer factories and domestic users.

The Economic Coordination Committee of the Cabinet (ECC) authorised negotiations with Qatargas for import of LNG up to 500 mmcfd in July 2013. In August 2014, the ECC constituted LNG Price Negotiation Committee (PNC), comprising the petroleum secretary as its chairman, representatives of the Finance Division, Water and Power, BOI, SNGPL Managing Director, SSGCL Managing Director, PSO Managing Director and ISGSL Managing Director.

The Price Negotiation Committee, after a series of meetings with Qatargas finalised the price and key commercial terms of the Long-Term LNG SPA with Qatargas.

The ECC, in its meeting on January 13, accorded approval of the recommendations made by PNC and also allowed PSO as the buyer to execute the Long-Term LNG SPA with Qatargas as the Seller.

Under the agreement, the two sides can review the price once after the 10th anniversary of the start date. “And if they fail to do so, either party may terminate the SPA with effect from the end of the contract year in which the termination notice was served in which case the supply period can be as short as 11 years,” the agreement said.

Qatargas has a cap on port charges at $320,000 per shipment. Port charges over and above that will be paid by PSO. PQA charges are presently around $750,000.

The price comparison provided by the Ministry of Petroleum at $40 Brent states: Mashal Project: $6.94/MMBtu, Integrated Project: $6.01/MMBtu, Qatar last offer: $6.56 /MMBtu, IP border rate: $5.70 per MMBtu, TAPI border rate: $5.90 per MMBtu and Qatar current: $5.35/MMBtu.

The prices mentioned above are based on last three months of Brent average of $40.

Khaqan Abbasi has said import of 3.75 tons LNG annually from Qatar would be sufficient for 20 percent needs of the country and would be first used for reviving closed power plants of this energy-starved country.

The minister said: “This agreement is the most cost-effective deal for LNG globally, under which Pakistan will keep importing this fuel from Qatar till 2031,” he added.

“We will also end the import of costlier fertilizer by using LNG in this sector. The procurement and installation of terminals for LNG will be ensured as per demand in the country,” he asserted. He said the agreement would help Pakistan address energy shortages in the country and play an important role in economic development. “2000MW shortage will be recovered,” he said.

“This is a government-to-government deal that was signed between Pakistan’s Ministry of Petroleum and Qatargas,” he added. He further explained that both the parties had the right to renegotiate price of the fuel after 10 years of the agreement.

“This is a very flexible agreement under which it is expected that Pakistan would import LNG worth $1 billion in the first year of the agreement,” he added.

He said now Qatar would provide third LNG ship in fourth week of every month unlike previous deal under which Qatar was supposed to provide one LNG ship in first, second and third week of every month.

He further said the agreement signed with Qatar was being recognised globally as a cost-effective and reasonable deal.