Islamabad, January 20, 2021 (PPI-OT): This rejoinder pertains to the article by former Minister Mr. Miftah Ismail under title ‘The LNG Story’ published in a section of press. The Government would like to provide facts about claims being made by Former Minister regarding LNG terminals and its procurement in this article, while comparing the spot price with term price of LNG, he stated that a 5 year bid for one cargo was used to set the price for the Qatar contract.
Anybody who has familiarity with the financial/ commodity markets know this is wrong, since the two price determinants are volume and term. Therefore, the price of a 60-cargo deal over 5 years should not be used for a 900-cargo deal over 15 years. Despite knowing the fact that LNG market was going to be flooded with new LNG supplies after 2017-2018, previous government still chose to enter into a 15-year agreement.
Furthermore, Former Minister’s claim about merchant LNG terminals is also incorrect. The truth is that private entrants have been trying to set up a private LNG terminal on a merchant model since 2010. ExxonMobil announced to set up a terminal in Feb 2017 and pulled out of the project in October 2017 because unlike oil business, sufficient volume of confirmed gas customers is required to underpin the investment which was not forthcoming. It is also known fact that previous government set up LNG terminals at fixed payment (take or pay method) at around $0.53 million per day, thereby taking the entire financial risk. Since previous government had declared LNG as petrol and price of LNG remained ring-fenced as a consequence, there are quite a few months when spot LNG was not required at all. Ordering LNG without confirmed demand create huge financial losses. Moreover, the article accused the current government for not buying cheaper LNG in summer. Without storage, cheaper LNG could not have been stored.
The former Minister must know the fact that the longer lead time for procurement of spot cargo does not guarantee a better price. The cheapest cargo ($2.23/mmbtu) ever procured by Pakistan had 39 days between bid opening and cargo delivery, whereas the most expensive cargo ($10.27/mmbtu) ever procured had 71 days between bid opening and cargo delivery. Although, there is never a fair comparison between spot price and long-term price, but Pakistan has procured 52 spot cargoes during 2017 to 2020 at an average slope of 11.9063%, whereas 15-year G2G slope is 13.37%. Presenting a narrative that India had already purchased all of its spot cargoes well before the winter season is also entirely misleading.
The truth is due to Japan’s spree buying of spot cargoes, many Indian buyers have also faced the same situation as of Pakistan, as reported by S and P Global on January 13, 2021. Despite these market conditions, the government managed to meet the requirement of LNG in December 2020 and January, 2021 at lowest prices of any winter period in Pakistan. Lastly, contrary to the facts, Dr. Miftah stated that this government produced more electricity on furnace oil instead of LNG. The truth is only 3.6% and 5% power was generated by RFO in 2020 and 2019 respectively, whereas former government produced 28% electricity on RFO in 2017.
For more information, contact:
Principal Information Officer,
Press Information Department (PID)
Tel: +92-51-9252323, +92-51-9252324
Fax: +92-51-9252325, +92-51-9252326