Pakistan is currently in negotiations to secure an additional three million mt of LNG in long-term contracts by the end of the year to supply its new LNG floating terminal due to arrive by December, according to M. Adnan Gilani, chief operating officer with Pakistan LNG Ltd.
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The negotiations are taking place with over half a dozen potential suppliers on a bilateral government-to-government basis, Gilani said at an interview with S&P Global Platts Thursday on the sidelines of the 9th CWC LNG Asia Pacific Summit, held in Singapore September 19-22.
"We hope to have two to three government-to-government agreements signed by the end of this year," Gilani said. "In the interim, we will secure around four spot cargoes a month [the equivalent of 3 million mt/year] until our contracts start."
The new supply agreements will increase Pakistan's total LNG contractual commitment to more than 11 million mt/year, as the country aims to resolve a decade-long energy crisis, driven by mounting gas consumption and faltering domestic production.
The new contractual volumes will be delivered to Pakistan's second floating, storage and regasification unit -- with a capacity of 4.5 million mt/year -- due to arrive at Port Qasim by the end of the year.
Currently, imports are being delivered to the Exquisite, an FSRU with a similar capacity, with another two due start up in the second half of 2018, all in Port Qasim.
As with PLL's previous supply agreements, the new deals will also be priced against international crude oil benchmarks, Gilani said.
PLL aims to change the electricity feedstock landscape by replacing fuel oil with regasified LNG, so LNG priced at a low slope to crude would guarantee the competitiveness of LNG over crude.
"Because of the fuel-oil substitution effect, the risk of oil prices moving in one direction or another is less of a concern; as long as it is oil linked, it is always better for us compared to fuel oil," Gilani said.
The excess use of fuel oil in power generation as a result of Pakistan's decade-long gas shortage has cost the government an extra $1 billion-$2 billion/year.
The country's consumption of diesel and fuel oil, a more expensive alternative to gas in power generation, peaked at 387,140 b/d in fiscal year 2014-15 (July-June), according to data from Pakistan's Oil Companies Advisory Council, before falling 1% in fiscal 2015-20, following the startup of the country's first LNG import terminal in March 2015.
SPOT, SHORT TERM
In the longer term, Pakistan aims to allocate a quarter of its LNG purchases to the spot and short-term markets, Gilani said.
"Initially, our goal is to solve our energy crisis. We have long-term downstream commitments, so we do not mind going to mid-to-long term initially," he said.
"Over the course of time, we will be able to cater to our variable non-cyclical demand... and allocate about a quarter of our portfolio to spot and short term.
PLL is currently purchasing four cargoes per month on a short-term basis as it awaits the start of new term volumes.
In the company's most recent tender, issued Tuesday, PLL sought four cargoes for delivery in January, with an award due to be announced November 3. PLL's previous tender, for four December cargoes, received 15 bids from a total of six sellers: Vitol, Engie, Gas Natural Fenosa, Gunvor, Trafigura and BB Energy. The lowest offer, at 13.98% of ICE Brent, was submitted by BB Energy. An award is yet to be announced.
Pakistan's LNG imports are projected to jump over the next five years, with PLL estimating unconstrained demand at 30 million mt/year, or 4 Bcf/day of gas equivalent, by 2022, which is half of the country's total gas demand projection of 8 Bcf/d for that year, according to government estimates.
With domestic production faltering and pipeline import projects still uncertain, the country's dependency on LNG imports to tackle its decade-long gas and energy crisis is unlikely to fade away, especially since global oversupply and low LNG prices are resulting in better supply terms for customers.
"We just need to create the transmission infrastructure to take the gas [from the LNG terminals] to the demand centers in the north," where 70% of the population and three-quarters of the industrial base are located, Gilani previously told Platts.
Pakistan's current consumption of gas, which accounts for half of its energy mix, swings between 6.2 Bcf/d in the summer season and 6.8 Bcf/d in winter. Average minimum temperatures in Punjab province, where more than half of Pakistan's population lives, stay below 5 degrees Celsius for most of the winter period, causing heating demand to rise.
Gas consumption is expected to continue growing at an annual rate of 5%, according to data from Pakistan's Ministry of Petroleum and Natural Resources, driven by a growing economy, rising demand from the power and industry sectors, and expansion of the country's gas supply and distribution network.