Assessing Qatar-Pakistan LNG Deal
Pakistan will import as much as 20 million tons of the super-chilled gas annually from various sources including Qatar, enough to fuel about two-thirds of Pakistan’s power plants. Gas shortage has idled half the nation’s generators. A 75 percent drop in LNG prices since 2014 has dramatically reduced the cost of the South Asian country’s energy needs, according to a Bloomberg report.
LNG arriving in Pakistan from Qatar will fetch 13.37% of the preceding three-month average price of a Brent barrel (considering the present Brent price as a proxy, that would equate to $167.5 per 1000 cubic meters), according to a report in Azerbaijan's Trend News. It translates to $4.50 per million BTUs.
Qatari LNG on Pakistani market. In 2014 Iran was exporting gas to Turkey at above $420 per 1000 cubic meters, but the figure plunged to $225, or $6 per million BTUs, currently due to low oil price. Iran previously said that the price of gas for Iraq would be similar to Turkey's price.
International Chamber of Commerce (ICC) arbitration court has recently ordered Iran to reduce its gas price to Turkey by 15% after Turkey complained. It's not clear if Iran will comply but even if it does, its price will still be $5.10 per million BTUs, much higher than the Qatari LNG price of $4.50 per million BTUs for Pakistan.
As recently as two years ago, LNG shipped to big North Asian consumer like Japan and Korea sold at around $15 to $16 a million British thermal units. Late last year, the price hit $6.65 a million BTUs, down 12% from September, according to research firm Energy Aspects. It expects prices to fall further in Asia this year, to under $6 per million BTUs, as a wave of new gas supply in countries from the U.S. to Angola to Australia comes on line, according to Wall Street Journal.
Petronet LNG Ltd, India’s biggest importer of liquefied natural gas (LNG), is saving so much money buying the commodity from the spot market that it’s willing to risk penalties for breaking long-term contracts with Qatar.
Will Pakistan be able to negotiate a better price with Iran? It seems difficult given the fact that Iranians have a reputation of being very difficult to deal with. Here's an excerpt about Iranians' negotiating style from Iranian-American author Vali Nasr's book "The Dispensable Nation":
"I remember a conversation in 2006 with Jack Straw, who was then Britain’s foreign secretary, about his time talking to Iran. He said, People think North Koreans are difficult to negotiate with. Let me tell you, your countrymen [Iranians] are the most difficult people to negotiate with. Imagine buying a car. You negotiate for a whole month over the price and terms of the deal. You reach an agreement and go to pick up the car. You see it has no tires. “But the tires were not part of the discussion,” the seller says. “We negotiated over the car.” You have to start all over again, now wondering whether you have to worry about the metal rim, screws, or any other unknown part of the car. That should give you a sense of what talking to Iran looks like".
|Source: US EIA|
|Growing Demand-Supply Gap in Pakistan|
In addition to signing the Qatar LNG deal, Pakistan has launched its first LNG import terminal in Karachi and started receiving shipments from Qatar. Pakistan has also signed a $2 billion deal with Russians to build a north-south pipeline from Gwadar to Lahore. But the country needs to rapidly build up capacity to handle imports and distribution of significant volumes of LNG needed to resolve its acute long-running energy crisis.
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