First time in the history of Pakistan: LNG spot market cold-shoulders Pakistan

[Patriot forever]

Hi,

India has two long term contracts with Qatar RasGas.

FIRST CONTRACT:
Supply of 7.5 mpta, the contract was signed in 1999 between RasGas and Petronet, with supply beginning from 2004, the FOB contract term is 25 years. Lets break it down into three periods for easier understanding.

From 2004-2009: RasGas to initially supply 5 mtpa till 2006, eventually to be increased to 7.5 mtpa beyond 2006. The price for this first five year period was fixed at $2.534/mmBTU (12.67% x $20). India had extremely favorable terms, but the honeymoon period ended in 2009.

From 2010-2014: For this five year period, the price was 12.67% of 60 month average of JCC. Qatar got rich. After 10 years, price can now be renegotiated (as per contract terms). So Qatar & India got into negotiations, which continued through 2015, and Petronet continued to import LNG at contractual price of 12.67% of 60 month average of JCC.

The second link shared by @Patriot forever which you quoted refers to that time period and that negotiation. The article is dated May 2016 & quotes the minister;

"Earlier the prices during 2015 were in excess of $12 per mmBtu. The current price applicable under the contract works out to less than $5 per mmBtu based on prevailing crude prices,” he said in a written reply to a question in the Lok Sabha."

Read more at:
https://economictimes.indiatimes.co...ofinterest&utm_medium=text&utm_campaign=cppst

After successful negotiations, India got Qatar to change benchmark from JCC to an average of preceding 3 months of Brent price, maintaining the same slope of 12.67% as seen in the first 11 years. This was huge win for Indian negotiators.

While we are at it, lets do a price comparison of May 2016 for India and Pakistan contracts;

India (JCC): 12.67% x (98.604) = $12.49/mmBtu
India (Brent): 12.67% x (38.173) = $4.84/mmBtu (as reflected in the article above)

Pakistan (Brent): 13.37% x (38.173) = $5.10/mmBtu

I fail to understand how you came up with $4.5/mmBtu price tag.




Beyond 2016: Under newly negotiated price of 12.67% x 3 months averaged Brent India was to import 7.5 mtpa till end of contract full term in 2028 (25 years). But in 2020, India thought it could outsmart Qatar and owing to volumes it is importing, can pressurize it to change the benchmark from Oil linked to Gas linked, but Qatar this time said a firm no, citing its other commitments in the region.

The first link shared by @Patriot forever refers to that attempted negotiation, and was attempting to highlight the price of contract which is clearly not 'fixed' at $8/mmBtu or $12/mmBtu but is indexed to Brent.



The article is dated Jan 2020 & clearly states:

"Qatar sells LNG to India at a price equivalent to 12.67 per cent of the three-month average Brent crude oil price. The indexation of Russian LNG is 11.5 per cent."

Read more at:

India wants Qatar to lower gas price; Qatar says no to reopening existing contracts - ET EnergyWorld

Oil Minister Dharmendra Pradhan met Qatar Energy Minister Saad Sherida al-Kaabi to press for the "need for realignment of existing long-term LNG contracts with the market to suit the affordability of end consumers"

energy.economictimes.indiatimes.com

SECOND CONTRACT:
Supply of 1 mpta, the contract was signed in Dec 2015, effective from 2016 - 2028, at a price of 12.67% x 3 months averaged Brent.
Essentially to avoid penalty from Qatar, India signed an additional volume of 1 mtpa at the same price and terms.

"In 2015, it renegotiated the price of the long-term deal to import 7.5 million tonnes per year of LNG from Qatar, helping in saving Rs 8,000 crore. At that time, Qatar agreed to price LNG at a three-month average Brent oil price instead of the previous practice of pricing it at a 60-month average of Japanese Crude Cocktail (JCC) in exchange for India buying an additional 1 million tonnes per annum of LNG."



I hope this helps in keeping discussion factual. If you have a reference to fixed price contract between Qatar and India contrary to Brent slope, kindly share.

Bro you deserve a positive rating for this post. Highly appreciate your input.

 

[muhammadhafeezmalik]

Hi,

India has two long term contracts with Qatar RasGas.

FIRST CONTRACT:
Supply of 7.5 mtpa, the contract was signed in 1999 between RasGas and Petronet, with supply beginning from 2004, the FOB contract term is 25 years. Lets break it down into three periods for easier understanding.

From 2004-2009: RasGas to initially supply 5 mtpa till 2006, eventually to be increased to 7.5 mtpa beyond 2006. The price for this first five year period was fixed at $2.534/mmBTU (12.67% x $20). India had extremely favorable terms, but the honeymoon period ended in 2009.

From 2010-2014: For this five year period, the price was 12.67% x 60 month average of JCC. Qatar got rich. After 10 years, price can now be renegotiated (as per contract terms). So Qatar & India got into negotiations, which continued through 2015, and Petronet continued to import LNG at contractual price of 12.67% of 60 month average of JCC.

The second link shared by @Patriot forever which you quoted refers to that time period and that negotiation. The article is dated May 2016 & quotes the minister;

"Earlier the prices during 2015 were in excess of $12 per mmBtu. The current price applicable under the contract works out to less than $5 per mmBtu based on prevailing crude prices,” he said in a written reply to a question in the Lok Sabha."

Read more at:
https://economictimes.indiatimes.co...ofinterest&utm_medium=text&utm_campaign=cppst

After successful negotiations, India got Qatar to change benchmark from JCC to an average of preceding 3 months of Brent price, maintaining the same slope of 12.67% as seen in the first 11 years. This was huge win for Indian negotiators.

While we are at it, lets do a price comparison of May 2016 for India and Pakistan contracts;

India (JCC): 12.67% x (98.604) = $12.49/mmBtu
India (Brent): 12.67% x (38.173) = $4.84/mmBtu (as reflected in the article above)

Pakistan (Brent): 13.37% x (38.173) = $5.10/mmBtu

I fail to understand how you came up with $4.5/mmBtu price tag.




Beyond 2016: Under newly negotiated price of 12.67% x 3 months averaged Brent India was to import 7.5 mtpa till end of contract full term in 2028 (25 years). But in 2020, India thought it could outsmart Qatar and owing to volumes it is importing, can pressurize it to change the benchmark from Oil linked to Gas linked, but Qatar this time said a firm no, citing its other commitments in the region.

The first link shared by @Patriot forever refers to that attempted negotiation, and was attempting to highlight the price of contract which is clearly not 'fixed' at $8/mmBtu or $12/mmBtu but is indexed to Brent.



The article is dated Jan 2020 & clearly states:

"Qatar sells LNG to India at a price equivalent to 12.67 per cent of the three-month average Brent crude oil price. The indexation of Russian LNG is 11.5 per cent."

Read more at:

India wants Qatar to lower gas price; Qatar says no to reopening existing contracts - ET EnergyWorld

Oil Minister Dharmendra Pradhan met Qatar Energy Minister Saad Sherida al-Kaabi to press for the "need for realignment of existing long-term LNG contracts with the market to suit the affordability of end consumers"

energy.economictimes.indiatimes.com

SECOND CONTRACT:
Supply of 1 mtpa, the contract was signed in Dec 2015, effective from 2016 - 2028, at a price of 12.67% x 3 months averaged Brent.
Essentially to avoid penalty from Qatar, India signed an additional volume of 1 mtpa at the same price and terms.

"In 2015, it renegotiated the price of the long-term deal to import 7.5 million tonnes per year of LNG from Qatar, helping in saving Rs 8,000 crore. At that time, Qatar agreed to price LNG at a three-month average Brent oil price instead of the previous practice of pricing it at a 60-month average of Japanese Crude Cocktail (JCC) in exchange for India buying an additional 1 million tonnes per annum of LNG."



I hope this helps in keeping discussion factual. If you have a reference to fixed price contract between Qatar and India contrary to Brent slope, kindly share.

LNG contracts are not as simple as you and I are discussing. Terms and timings matter. Trafigura had offered LNG for as low as $3.7 per mmbtu for one year in April. It was willing to convert our existing contracts at that fixed rate. PTI govt did nothing. Yesterday in the LNG tender, no cargo was offered for one week. Lowest bid for others were $15.28 & $12.95.

 

[Indos]

Gas price will be more expensive in the future since it is regarded as cleaner energy provider than coal and oil.

 

[farok84]

LNG contracts are not as simple as you and I are discussing. Terms and timings matter. Trafigura had offered LNG for as low as $3.7 per mmbtu for one year in April. It was willing to convert our existing contracts at that fixed rate. PTI govt did nothing.

Hi,

Thanks for the reply. I understand LNG contracts are not simple. I think the whole point of my earlier post was explicitly that.

Firstly, the proposed arrangement by Trafigura is not for additional volumes. It is more of a swap. So even if PTI government had signed it, it would not have effected our current predicament, would it?

Yesterday in the LNG tender, no cargo was offered for one week. Lowest bid for others were $15.28 & $12.95.

The tender hasn't been awarded. The spur in spot prices is due to uncertainty caused by;

1. Supply disruptions owing to production issues/ unplanned shutdowns in Qatar, Malaysia, Australia, Mexico, Algeria, & US. (Cameron LNG is restarting today after a trip shut-downed three trains earlier this month, so some relief will come)
2. Panama Canal restrictions.
3. Higher winter demand specially in China, increased demand in SK (due to recent conversion to gas-fired plants from coal), and Japan. (Some Japanese regions are facing power shortage today, culprit reduced gas fired output due to LNG delays, they have requested 800MW urgent supply from other regions, this actually raised spot price for power there too)

In short, this is due to breakdown in global supply logistics. Just today JKM hit six year high and is floating above $13/mmBtu.

We cannot blame or praise government for spot fluctuations, these prices are highly volatile and with too many variables in play, can very easily upset even the most experienced of buyers. That's the nature of spot market, we have to live with it, until we increase storage capacity.

What I understood from the above, Trafigura was proposing to buy our LNG in International waters, and sell us equivalent gas on a fixed price of Brent (31.88 for 1 year and 35.37 for 2 years) maintaining parent contracts slope. So, why is a Singaporean commodity trade firm is interested in buying expensive LNG and provide SSGC at half the rate? That sounds too good to be true. I hope the letter isn't a prank someone is pulling off.

If PTI had accepted this proposal, you and I, both would be lamenting them.

Our contracts are on DES bases, the ownership gets transferred at the port of arrival, we will have to amend all our existing contracts. But for argument's sake, lets assume suppliers allow us to sell to a commodity trader, now, we are essentially entering FOB terms, who will foot the cost and the risk, how will final payments for cargo work out? who will pay for freight and insurance? I can bet you it won't be Trafigura, so PLL/ PSO then, works out well for Trafigura. Add this extra cost on top of that fixed price. Let's move on, now the vessel has reached the Port of arrival (Port Qasim). Who will be responsible for custom clearance services, not Trafigura, poor PLL/ PSO to rescue again. Now we are at terminal, ready to offload, but Trafigura doesn't have the required 140,000 cbm storage or re-gassification capacity, proposed solution, ask the government to mediate a 'tolling agreement' between PLL/ PSO and Trafigura, so the latter can use governments capacity scot-free. Who will be paying for the terminals charges? Not Trafigura, so please add this extra cost too, to that fixed price. They have said all this, rather nicely in Point # 2 (Page 1) and Points 3 & 4 (Page 2)

Since Trafigura is so committed in developing Pakistan's energy market, why go through all these troubles, Trafigura was awarded license for importing LNG and its sales to consumer last year, so why don't they import LNG from their own portfolio, re-gas it and then supply it at their quoted 'fixed price' to SSGC.

The sheer arrogance and prevalent entitlement being displayed (in this letter) is blatantly astounding.

 

[muhammadhafeezmalik]

Hi,

Thanks for the reply. I understand LNG contracts are not simple. I think the whole point of my earlier post was explicitly that.

Firstly, the proposed arrangement by Trafigura is not for additional volumes. It is more of a swap. So even if PTI government had signed it, it would not have effected our current predicament, would it?





The tender hasn't been awarded. The spur in spot prices is due to uncertainty caused by;

1. Supply disruptions owing to production issues/ unplanned shutdowns in Qatar, Malaysia, Australia, Mexico, Algeria, & US. (Cameron LNG is restarting today after a trip shut-downed three trains earlier this month, so some relief will come)
2. Panama Canal restrictions.
3. Higher winter demand specially in China, increased demand in SK (due to recent conversion to gas-fired plants from coal), and Japan. (Some Japanese regions are facing power shortage today, culprit reduced gas fired output due to LNG delays, they have requested 800MW urgent supply from other regions, this actually raised spot price for power there too)

In short, this is due to breakdown in global supply logistics. Just today JKM hit six year high and is floating above $13/mmBtu.

We cannot blame or praise government for spot fluctuations, these prices are highly volatile and with too many variables in play, can very easily upset even the most experienced of buyers. That's the nature of spot market, we have to live with it, until we increase storage capacity.




What I understood from the above, Trafigura was proposing to buy our LNG in International waters, and sell us equivalent gas on a fixed price of Brent (31.88 for 1 year and 35.37 for 2 years) maintaining parent contracts slope. So, why is a Singaporean commodity trade firm is interested in buying expensive LNG and provide SSGC at half the rate? That sounds too good to be true. I hope the letter isn't a prank someone is pulling off.

If PTI had accepted this proposal, you and I, both would be lamenting them.

Our contracts are on DES bases, the ownership gets transferred at the port of arrival, we will have to amend all our existing contracts. But for argument's sake, lets assume suppliers allow us to sell to a commodity trader, now, we are essentially entering FOB terms, who will foot the cost and the risk, how will final payments for cargo work out? who will pay for freight and insurance? I can bet you it won't be Trafigura, so PLL/ PSO then, works out well for Trafigura. Add this extra cost on top of that fixed price. Let's move on, now the vessel has reached the Port of arrival (Port Qasim). Who will be responsible for custom clearance services, not Trafigura, poor PLL/ PSO to rescue again. Now we are at terminal, ready to offload, but Trafigura doesn't have the required 140,000 cbm storage or re-gassification capacity, proposed solution, ask the government to mediate a 'tolling agreement' between PLL/ PSO and Trafigura, so the latter can use governments capacity scot-free. Who will be paying for the terminals charges? Not Trafigura, so please add this extra cost too, to that fixed price. They have said all this, rather nicely in Point # 2 (Page 1) and Points 3 & 4 (Page 2)

Since Trafigura is so committed in developing Pakistan's energy market, why go through all these troubles, Trafigura was awarded license for importing LNG and its sales to consumer last year, so why don't they import LNG from their own portfolio, re-gas it and then supply it at their quoted 'fixed price' to SSGC.

The sheer arrogance and prevalent entitlement being displayed (in this letter) is blatantly astounding.

We buy coal from Trafigura and use PSO fuel cards for advance payment to our transporters, but source of this document is neither Trafigura nor PSO/PLL.

We have to pay extra than India for insurance and freight for our security position. But all the things were included in Qatar agreement till our port. Custom clearance, terminal charges, terminal to SSGC and than SSGC to SNGPL system and then to end user every thing was negotiated and would have to pay PSO/PLL in either case.

 

[darksider]

Gas price will be more expensive in the future since it is regarded as cleaner energy provider than coal and oil.

Oil mafia in Pakistan and incompetent of our government are cause of this crisis.
They know every winter we face shortage of gas but plan nothing according to it.now we dont have gas for cooking also.
Oil mafia want the rise of furnace oil.they involved in this shortage via bribing officials.
This is not the story of one government.previous governments also did same.

 

[ali_raza]

Oil mafia in Pakistan and incompetent of our government are cause of this crisis.
They know every winter we face shortage of gas but plan nothing according to it.now we dont have gas for cooking also.
Oil mafia want the rise of furnace oil.they involved in this shortage via bribing officials.
This is not the story of one government.previous governments also did same.

not evey time is sazish of this or that
spot prices can crash tomorrow if vaccination is not effective god forbid
or anything else
like demand in china drops exponential
or biden don’t give another handout of some trillions

 

[ziaulislam]

LNG contracts are not as simple as you and I are discussing. Terms and timings matter. Trafigura had offered LNG for as low as $3.7 per mmbtu for one year in April. It was willing to convert our existing contracts at that fixed rate. PTI govt did nothing. Yesterday in the LNG tender, no cargo was offered for one week. Lowest bid for others were $15.28 & $12.95.

View attachment 696711
View attachment 696712

And what was your recommendations we do witv LNG in summer when we have no demand..make achaar of it

 

[farok84]

We buy coal from Trafigura and use PSO fuel cards for advance payment to our transporters, but source of this document is neither Trafigura nor PSO/PLL.

Hi,

Thanks for the reply.

The source of the document whether it's Petroleum Ministry, PM Office, Oval office or Galactic Federation office, does not warrant credence to Trafigura. My comments were directed towards the contents of letter. If it was indeed sent to Petroleum Ministry, you should applause and appreciate PTI government for neglecting it. It shows the people in ministry are mature enough to look through and beyond well crafted word play.

Good to know they sell us coal, they can also sell us LNG from their own portfolio, since now they are licensed to do so (they received their license for LNG import and sales in 2019). Pakistan has floated a tender for March deliveries, hopefully Trafigura will sale their own LNG, using their own re-gas capacity of 150 MMcf/d (at PGPCL terminal) and provide gas at SSGC metering station at the same fixed price as quoted in their letter. This will add alot of credence to their proposal and prove their ability. This can also play a major pivot in swaying Petroleum ministry decisions in favor of all future Trafigura proposals. Makes sense, right, what say you?

We have to pay extra than India for insurance and freight for our security position. But all the things were included in Qatar agreement till our port.

As I said earlier, our contracts are on delivered ex-ship (DES) bases. This is not exclusive to Qatar but all our LNG contracts, whether long, short or spot, are all DES based, which means seller is responsible for the delivery of uncleared goods to designated port (Port Qasim). Seller (whether Qatar or anyone else) has no business with goods clearance or whatever buyer does with the cargo once in enters designated port. This is when their risk, liability and obligation ends.

We have to pay extra than India for insurance and freight for our security position. But all the things were included in Qatar agreement till our port. Custom clearance, terminal charges, terminal to SSGC and than SSGC to SNGPL system and then to end user every thing was negotiated and would have to pay PSO/PLL in either case.

Who is paying for all these charges? Are you referring seller (Qatar) has to pay PLL/ PSO for Custom clearance and further?
As per our agreements, buyer (PLL/ PSO) is responsible for customs clearance, and whatever happens to this LNG afterwards. PSO/ PLL pays for custom clearance, (even PLL setup some special panel for custom agents last year), terminal charges, and any other charges before the RLNG is sold to their customers (SSGC or any-other customer).

"KARACHI: Pakistan LNG Limited (PLL) is forming a panel of Customs agencies to streamline and expedite the imports clearance of liquefied natural gas (LNG) cargoes as country’s demand for LNG could more than triple in the next three to five years.[the_ad id=”31605″]The last date for submitting the proposals is April 04, 2019. "

PLL forming panel of Customs agents to streamline import clearance of LNG – CustomsNews.pk Daily

customnews.pk