Featured Pakistan Forced to Buy Priciest LNG Shipments to Avoid Blackouts

[niaz]

In USA, most natural gas storage consists of using depleted natural gas or oil fields.

The Basics of Underground Natural Gas Storage - U.S. Energy Information Administration

www.eia.gov

Too many existing natural gas users. Thar coal mines are not connected to the main rail system.....yet.

Theoretically natural gas "Under pressure" can be stored underground in the depleted reservoirs even in the salt cavern formations. But most common natural gas storage is liquid or gaseous form is in the above–ground tanks. To the best of my knowledge most existing underground gas storage facilities in the United States such as the depleted natural gas or oil fields are located close to the comsumtion centres and the surplus gas stored therein is produced within the USA..

I understood that we were discussing Pakistan scenario. Unlike USA we suffer from severe gas shortage and only gas surplus to our immediate needs would be imported gas as LNG and would need transportation to the depleted reservoirs that are located far from large urban centres where the demand is. This process is therefore not practicable. Primarily because if you reverse the old pipelines (assuming these still exist) and pipe the LNG from Karachi to one the fields as gas to an old gas field in Sind, you need to install pressurising equipment at the field. If you transport it in liquid form, then you would need to invest in regassification plant. My reply was based upon this reasoning hence instead of a long-winded explanation, I replied only briefly. I appologise for any misunderstanding.

 

[Sineva]

Hi,

Gas through IP pipeline is more expensive than Qatar Lng (2016 contract price), no government in Pakistan will commit to it, until Iran lowers it down. I have written extensively on it, kindly go through my previous posts on subject, if you are interested.

If that was the case then why did the on earth did the then pak government even sign the contract to build its section of the ip pipeline in the first place?
Perhaps the then pak government never really had any intention of honoring the deal in the first place,possibly this was just a way of extracting us and saudi energy or economic concessions in return for never going ahead with the ip pipeline construction,tho if this was the plan it was a remarkably ill considered one,as by signing the deal pakistan was liable to some very heavy penalty fees for non completion.
I`m curious,why do you think pakistan got itself into this mess with the ip pipeline?

 

[Indos]

Current situation proves that long term fixed price LNG contracts are better then spot market. Extra seasonal gas can be stored in depleted gas fields as a reserve.

Japanese industry boomed during 70's because they had long term fixed price contracts with Indonesia for LNG at low prices agreed to before the Arab oil embargo. EU today is forced to buy LNG at crazy high spot prices and its economy will suffer massively. If PTI had agreed to a big long term contract with Qatar when gas prices were at record lows......Pakistan could have been in a similar situation that Japan was in during the 70's.

PTI misjudged long term gas prices.....they went for the lowest bidders at the time which was spot price gas dealers.....short term thinking that proved foolish in the long run.

I dont know for that, but long term gas contract is also flexible, Indonesia for sure was benefiting A LOT due to Opec oil embargo in 1970's.

There is fixed price as well, depending on the situation when the contract is made, abundant gas supply situation will push producer to make fix price long term contract, while the situation like this will make the buyer in non advantage position where producer will have more say about the contract term.

Indonesia long term gas contract to Singapore for 20 years since 2003 has 9 billion USD fixed price rate, it will be ended next year, and the contract has been renewed with 40 % less gas volume per year than previous contract, but the price is unknown. It is expected the price is quite high. The owner of the gas field and the pipe line is Indonesia Medco Energy.

Gas supply from Sumatra to Singapore to ease under new contract from 2023

SINGAPORE (The Straits Times/Asia News Network): The volume of Indonesian gas supplied to Singapore from South Sumatra will fall under a new five-year contract that starts from 2023, said Indonesia’s Minister for Energy and Mineral Resources Arifin Tasrif.

www.thestar.com.my

Hi,

Pti was more interested in pipeline gas from Turkmenistan and the Russian pipeline (that Putin discussed at SCO meeting) through Afghanistan, as it gives us more options (both in terms of diversification of suppliers and end users). Gas through IP pipeline is more expensive than Qatar Lng (2016 contract price), no government in Pakistan will commit to it, until Iran lowers it down. I have written extensively on it, kindly go through my previous posts on subject, if you are interested.

It is weird, LNG is a processed natural gas, while pipe line gas is just natural gas. Natural gas through pipe line should be much cheaper than LNG.

 

[CrazyZ]

I dont know for that, but long term gas contract is also flexible, Indonesia for sure was benefiting A LOT due to Opec oil embargo in 1970's.

There is fixed price as well, depending on the situation when the contract is made, abundant gas supply situation will push producer to make fix price long term contract, while the situation like this will make the buyer in non advantage position where producer will have more say about the contract term.

Indonesia long term gas contract to Singapore for 20 years since 2003 has 9 billion USD fixed price rate, it will be ended next year, and the contract has been renewed with 40 % less gas volume per year than previous contract, but the price is unknown. It is expected the price is quite high. The owner of the gas field and the pipe line is Indonesia Medco Energy.

Gas supply from Sumatra to Singapore to ease under new contract from 2023

SINGAPORE (The Straits Times/Asia News Network): The volume of Indonesian gas supplied to Singapore from South Sumatra will fall under a new five-year contract that starts from 2023, said Indonesia’s Minister for Energy and Mineral Resources Arifin Tasrif.

www.thestar.com.my

It is weird, LNG is a processed natural gas, while pipe line gas is just natural gas. Natural gas through pipe line should be much cheaper than LNG.

JAPANESE TO OBTAIN GAS FROM INDONESIA (Published 1973)

5 Japanese cos sign $3-billion contract on Dec 3 with Pertamina, Indonesian state oil co, guaranteeing yrly supply of 7.5 million tons of LNG to Japan over 20-yr period; delivery to begin in '77

www.nytimes.com

Japanese industry benefitted massively from a cheap 20 year LNG supply from Indonesia starting in 1973. Prices were agreed to right before the Arab oil embargo. Japan probably made 100's of billions....possible trillions from industrial exports that were enabled by a 3 billion dollar LNG contract with Indonesia. Same with Germany in the 2000's......it made trillions from industrial exports enabled by a few billion dollars of cheap Russian gas imports.

 

[SoulSpokesman]

@chinasun

China Datang Begins Construction on China’s First Large Coal to Synthetic Natural Gas Project

Correct me if I am wrong, but isnt PRC already the largest player in the CTL (mainly methanol) and CTG (syngas) already?

Regards

 

[Indos]

JAPANESE TO OBTAIN GAS FROM INDONESIA (Published 1973)

5 Japanese cos sign $3-billion contract on Dec 3 with Pertamina, Indonesian state oil co, guaranteeing yrly supply of 7.5 million tons of LNG to Japan over 20-yr period; delivery to begin in '77

www.nytimes.com

Japanese industry benefitted massively from a cheap 20 year LNG supply from Indonesia starting in 1973. Prices were agreed to right before the Arab oil embargo. Japan probably made 100's of billions....possible trillions from industrial exports that were enabled by a 3 billion dollar LNG contract with Indonesia. Same with Germany in the 2000's......it made trillions from industrial exports enabled by a few billion dollars of cheap Russian gas imports.

Ok thanks for the credible source you are providing,

Yup, energy is vital to every nation, but Japanese is also investing a lot in Indonesia. That time is also the time where Toyota starts their investment in Indonesia, it then lead to even in 1980's Toyota has its engine factory in Indonesia.

Japan government also gives huge soft loan to Indonesia since 1970's for Indonesia infrastructure development

I believe it is mutual benefit for both Indonesia and Japan

------------------------------------------

Since the start of engine production in 1982, TMMIN continues to keep up with the development of engine technology. TR Engine was initially produced in 2004 and the production continues to increase from year to year to meet the customer needs.

Global Manufacturing Company | Manufacturing Product

www.toyota.co.id

 

[chinasun]

@chinasun

China Datang Begins Construction on China’s First Large Coal to Synthetic Natural Gas Project

Correct me if I am wrong, but isnt PRC already the largest player in the CTL (mainly methanol) and CTG (syngas) already?

Regards

Datang is the news in 2008. Sorry

 

[farok84]

If that was the case then why did the on earth did the then pak government even sign the contract to build its section of the ip pipeline in the first place?
Perhaps the then pak government never really had any intention of honoring the deal in the first place,possibly this was just a way of extracting us and saudi energy or economic concessions in return for never going ahead with the ip pipeline construction,tho if this was the plan it was a remarkably ill considered one,as by signing the deal pakistan was liable to some very heavy penalty fees for non completion.
I`m curious,why do you think pakistan got itself into this mess with the ip pipeline?

Hi,

It was Zardari led PPP government that renegotiated and signed the deal during their last years. They should not have signed it, not at that price and certainly not with that penalty clause, but they did, and I have no logical explanation other than the assumption that some kind of payback might be involved, with Zardari's involvement, that is more than plausible scenario.

It is weird, LNG is a processed natural gas, while pipe line gas is just natural gas. Natural gas through pipe line should be much cheaper than LNG.

Hi,

It should be, but it is not the case here.

Please go through the links in following quoted posts to have better understanding of cost related to IP gas pipeline construction, tariff to be levied on end consumers to pay for construction and it's operations and maintenance costs, and the contract price for gas itself, and failed renegotiations. Please note, the contract price for IP unlike TAPI, does not include pipeline construction and O/M costs.

Hi,

The price of Iranian Gas through Iran-Pakistan Pipeline after proposed amendments in earlier signed GSPA was around equivalent to 12% (1) of Brent. Iran did not sign this amendment and only gave verbal commitments. So, the earlier signed GSPA linked to JCC (Japan Crude Cocktail) still stands with price equivalent to 14.25% (2) -13.4% (3) of Brent. Even if they had signed the amended GSPA (at 12% Brent), the price was outrageous and made no sense (even in 2017) and was even higher than Pakistan Lng contracts with Eni and Gunvor (priced at 11.6247-12.14% & 11.6247%) (5), that were signed in 2016. Their signed offered price stands at equivalent to +13.4% Brent, even higher than Qatar (13.37% Brent) 2016 Lng contract. Our new Qatar contract is priced at 10.2% Brent (4).

(1) https://www.thenews.com.pk/amp/180093-Pakistan-in-talks-with-Iran-to-renegotiate-IP-project-GSPA

"Shahid Khaqan Abbasi, minister for petroleum and natural resources, told the upper house that the government has requested Iranian authorities to bring changes in the gas sale and purchase agreement (GSPA). The price of natural gas, under GSPA, was agreed at $12 per million metric British thermal unit (MMBtu), if crude oil price stood at $100/bbl in the international market."

(2) https://www.dawn.com/news/1238783

"Compared with the natural gas import options, the government claimed the delivery price at border under the Iran-Pakistan gas pipeline was $5.70 per MMBTU at $40 Brent price and that of Turkmenistan-Afghanistan-Pakistan-India was $5.90."

(3) https://www.oxfordenergy.org/wpcms/wp-content/uploads/2013/06/NG-77.pdf
Page 37 of 87 (or 30)

View attachment 794597

(4) http://www.ogra.org.pk/download/6761

View attachment 794605

(5) http://www.ogra.org.pk/download/6568

View attachment 794603


If you are interested, please read following for Eni, Gunvor and IP GSPAs.

Says the GSPA it had signed and is not ready to renegotiate. If Iran agrees to sell at Henry Hub prices, I will be the first one to lobby for that.

View attachment 795995

https://www.oxfordenergy.org/wpcms/wp-content/uploads/2013/06/NG-77.pdf

View attachment 795997

View attachment 795998

View attachment 795999

Rethinking Pakistans Energy Equation: Iran-Pakistan Gas Pipeline ... - publication details

Author

sdpi.org

Hi,

Apart from the links I shared earlier, this one quotes the Minister for Petroleum and Natural Gas at the time (2012). The slope translates (lazily) to 13% of Brent (when Brent was to be priced at 100/bbl). Our 2016 contract with Qatar stands at 13.37% of Brent and 2021 stands at 10.2%. (I have shared Ogra price summary in Post # 30)


“Iranian gas will cost $13 per mmbtu and Turkmen gas $11 per mmbtu, if the crude oil price is $100 per barrel,” the official said; adding that Pakistan will sign a Gas Sales Purchase Agreement (GSPA) with Turkmenistan in the upcoming May talks.

Unanimous decision: TAPI gas transit fee finalised | The Express Tribune

Final talks on the project to be held on May 24 in Turkmenistan.

tribune.com.pk

@Sainthood 101

Hi,

Adding to above quoted post (Post # 43) following should provide a better visualization for the additional pipeline required to bring I-P gas from Nawabshah onwards to consumers in Punjab (or it's tie into North - South or PSGP) and hence increasing further, the end consumer price.

View attachment 796785

 

[SoulSpokesman]

@farok84

Farok sb,

Assertions have been made here on both sides of the fence- that spot purchase works out cheaper in the long run as well as the vice versa. While I dont have a definitive answer to the Q m2c would be that it always better to be covered to the extent of say 80% thereabouts by long-term contracts. Even if it is a bit more expensive. The differential must be viewed as a sort of an insurance policy.

Regards

 

[farok84]

@farok84

Farok sb,

Assertions have been made here on both sides of the fence- that spot purchase works out cheaper in the long run as well as the vice versa. While I dont have a definitive answer to the Q m2c would be that it always better to be covered to the extent of say 80% thereabouts by long-term contracts. Even if it is a bit more expensive. The differential must be viewed as a sort of an insurance policy.

Regards

Hi,

You are cent percent correct here, this is exactly what every country, including Pakistan does. Secure enough through term contracts to cater their firm demand and cope seasonal demand through spot purchases.

Unfortunately, for Pakistan, our term contracts with Gunvor and Eni, were poorly negotiated and managed, specially the penalty clause, that heavily favored the two traders, and provided them legal cover to default at will whenever spot prices skyrocketed, leaving us to scramble in vain to provide even for our firm demand.

 

[SoulSpokesman]

@farok84

Farok sb,

Thanks. That was very helpful.

There is one thing though- the escape clauses are not standardised across various contracts. It is possible that the penalty clause may have been very low but as a compensatory factor the overall price (whether quoted as a fixed price or as a fixed "slope" to the crude) may have been kept very low. I remember a few years back (although I may be wrong on this) the Pakistani govt had claimed that they had obtained a very favourable term vis-a-vis India in terms of gas price. Perhaps you have looked into this angle as well?

In hindsight of course it seems to have been a poor call

Regards

 

[Finer]

I am asking a simple question "Why government cancelled earlier bids at lower price and bought at higher price from company after a few days at much higher prices for the third time in three months??" and instead answering this simple question you running from north to south.

Because gamble backfired. It is desperation in the last measures. It is either electricity on surged inflation cost or no electricity.

 

[RoadRunner401]

@farok84

Farok sb,

Thanks. That was very helpful.

There is one thing though- the escape clauses are not standardised across various contracts. It is possible that the penalty clause may have been very low but as a compensatory factor the overall price (whether quoted as a fixed price or as a fixed "slope" to the crude) may have been kept very low. I remember a few years back (although I may be wrong on this) the Pakistani govt had claimed that they had obtained a very favourable term vis-a-vis India in terms of gas price. Perhaps you have looked into this angle as well?

In hindsight of course it seems to have been a poor call

Regards

We in Pakistan have kindergarten failed Economist, their understanding of current affairs is based on what kindergarten failed lifafa journalist feed them. Many of these economist armed with articles from DAWN, THE NEWS and other for sale groups trying to convince that the sturdy supply of gas to starved industry's which are the backbone of our economy is bad and importing from QATAR or United States is cheaper needs his or her head examined.

Uninterrupted GAS supply to the industry means 1000s of dead units working creating millions of badly needed jobs, but because it isn't acceptable to Arabs therefore it's not feasible. Importing LNG from United States or Qatar carries freight charges (you will not find one of these details worth billions of dollars extra cost on top of the price mentioned anywhere) there are other costs involved that are also never mentioned.

 

[SoulSpokesman]

@RoadRunner401

there are other costs involved that are also never mentioned.

Umm... what we in our part of the world call "lubrication"?

Uninterrupted GAS supply to the industry means 1000s of dead units working creating millions of badly needed jobs, but because it isn't acceptable to Arabs

This is not very clear. Why would Arabs object to gas supply to Pak, which they would be supplying in the first place? And why would they object to Pakistan having a flourishing industry- they are not competitors anyway. I can understand IND, BD or VN feeling jealous but why Arabs?

Regards

 

[farok84]

@farok84

Farok sb,

Thanks. That was very helpful.

There is one thing though- the escape clauses are not standardised across various contracts. It is possible that the penalty clause may have been very low but as a compensatory factor the overall price (whether quoted as a fixed price or as a fixed "slope" to the crude) may have been kept very low. I remember a few years back (although I may be wrong on this) the Pakistani govt had claimed that they had obtained a very favourable term vis-a-vis India in terms of gas price. Perhaps you have looked into this angle as well?

In hindsight of course it seems to have been a poor call

Regards

Hi,

The contract price for Gunvor;

1) 2015 contract with PSO, was 13.37% of three months averaged Brent for 60 cargoes,
2) 2017 contract with PLL, was 11.647% of three months averaged Brent for 60 cargoes.

The contract term was 5 years for delivery of 60 cargoes. Penalty was only 30% of the defaulted cargo value.

ENI contract price is quite interesting, the contract was signed in 2017 for delivery of 180 cargoes for 15 years term.

i) 11.6247% for the first two years (2017 through 2019, 24 cargoes),
ii) 11.95% for the following two years (2019 through 2021, 24 cargoes),
iii) 12.14% for the remaining 11 years (2021 till 2032, 132 cargoes).

This is probably the only contract in which the price is increasing with higher volumes being purchased. The penalty for default was same meagre 30%.

None of these contract prices were at a discount to the prevailing market prices.

https://aperc.or.jp/file/2020/9/1/Changing+LNG+market+dynamics_implication+for+supply+security+in+the+APEC+region.pdf

2020 World LNG Report – IGU

www.igu.org

I am not sure which Indian contract you were referring to, but usually comparisons are drawn with Qatar contracts of the two countries. I have written regarding that a couple of years ago. I will quote it here, if you are interested in a read.

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.