Pakistan signs landmark 15-year LNG supply deal with Qatar

ISLAMABAD/ABU DHABI (Reuters) - Pakistan said on Wednesday it had signed a 15-year agreement to import up to 3.75 million tonnes of liquefied natural gas a year from Qatar, a major step in filling Pakistan’s energy shortfall.

The deal, Pakistan’s biggest, will help the country add about 2,000 megawatts of gas-fired power-generating capacity and improve production from fertilizer plants now hobbled by a lack of gas, a government official said.

“This is a huge and significant achievement because this diversifies Pakistan’s energy mix,” the official said. “This is the single largest commercial transaction that Pakistan has entered into.”

Supplies will start in March, Qatar’s state news agency QNA said. They will eventually come to around five LNG cargoes per month, the official said.

Pakistan, a nation of 190 million people, can only supply about two-thirds of its gas needs. The ruling party, which campaigned on promises of resolving the energy crisis, wants to ease shortages by expanding LNG shipments before a 2018 general election.

The deal signed between Pakistan State Oil company and Qatari’s Qatargas-2, the world’s biggest LNG producer, was witnessed by Pakistan’s Prime Minister Nawaz Sharif, the official said.

According to the statement, LNG arriving in any particular month will fetch 13.37 percent of the preceding three-month average price of a barrel of Brent crude oil.

A price review is permitted 10 years after the start of supply. A cancellation option could shorten the deal to 11 years if the parties fail to agree a new price. A period to build up supply is provided for.

Spot LNG prices are trading at multi-year lows of $5.75 per million British thermal units (mmBtu). [LNG/]

Pakistan, along with Egypt and Jordan, was a newcomer to the LNG import market in 2015, helping drive up demand and absorb growing world supplies from a wave of new projects.

Pakistan’s first floating import terminal got its first spot imports last April and has import capacity for around 4.4 million tonnes of LNG per year. The country has also tendered for a second terminal, which should be operational by mid-2017.

In 2016, Qatargas, the world’s biggest LNG exporter, will supply 2.25 million tonnes, followed by a ramp-up to 3.75 mt/year from the second quarter of 2017.

Under the take-or-pay deal, Pakistan retains flexibility to reduce or raise Qatari LNG intake by three cargoes per contract year.

Reporting By Krista Mahr in Islamabad and Maha El Dahan in Dubai; writing by Oleg Vukmanovic in Milan, editing by David Evans, Larry King