Pakistan’s LNG Endeavors Seeking Spot Cargoes, Strengthening Ties with Azerbaijan
ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet approved a framework agreement with Azerbaijan for the import of Liquefied Natural Gas (LNG) during Prime Minister Shehbaz Sharif’s ongoing visit to Baku.
Chaired by Finance Minister Ishaq Dar, the ECC meeting also granted approval for two supplementary grants of Rs562.5 million. These grants are allocated for the maintenance of VVIP helicopters and employee-related expenses of the Heavy Electrical Complex.
Based on a summary from the Ministry of Energy (Petroleum Division), the ECC authorized the state-owned Pakistan LNG Ltd (PLL) to execute the proposed framework agreement with the State Oil Company of Azerbaijan Republic (Socar) Trading on a government-to-government basis.
Furthermore, the ECC instructed the Ministry of Petroleum to assess Pakistan’s LNG requirements on a rolling basis, at least three months in advance.
Initially valid for one year, the agreement can be extended for an additional year. Socar will offer one LNG cargo per month, 45 days prior to the start of the relevant delivery window. Each cargo offer will have a set validity period, during which PLL will accept or decline the offer. The LNG price, quoted in US dollars per mmBtu (million British thermal units), will be offered by Socar to PLL for each cargo of 3,200,000mmBtu, 45 days before the delivery window. Payment will be due within 30 days of PLL receiving the invoice, for which PLL will issue a prior letter of credit (LC) from local banks. LC’s confirmation charges will be borne by the seller.
Port charges for Socar will be capped at $500,000, and all costs of Port Qasim, including taxes, will be considered as port charges. Each offer will specify the applicable demurrage rate, expressed as a fixed amount in US dollars per day and on a pro-rata basis for each part of a day. PLL and Socar will sign a confirmation notice when PLL accepts an offer for any cargo.
In 2016, a price negotiation committee (PNC) was established for LNG prices, which approved the framework agreement between PLL and Socar in November 2022. However, the PNC directed PLL to devise a mechanism to evaluate the price. Under the approved mechanism, PLL will assess the offered price by comparing it with the prevailing international price and consulting downstream customers in the power sector to ensure affordability.
According to informed sources, the business model will primarily rely on distressed cargoes available in the market beyond committed schedules. These cargoes will be obtained at a discount by companies capable of redirecting them to their clients for a mutually beneficial outcome.
The ECC was informed that PLL used to import up to 3 cargoes per month through spot tendering. However, since June 2022, the company has faced challenges in securing even a single cargo, as its repeated tenders failed to attract any bidders.
