The new LNG terminals drama is in its final stages. The government wants another terminal during this regime to put another feather in its cap but time is running short. The approval issues with the new terminals were taking very long, and in the process, the government has been showing intentions to make its own one. That’s not a good idea! One issue is that government’s timeline could be slower. Second: it may not be prudent for the government to say no to a private sector terminal with both price and supply risks (unlike the first two terminals) being assumed by the private sector. Hence, its better for the government to go back to the idea of facilitating private sector for making the terminal(s).
There are two companies Energas and Tabeer (Mitsubishi) in the race. Based on demand, supply and pipeline availability, the math shows that only one terminal is possible. If the government decides to make its own, the two private players will vanish. If government comes out of the equation, one of the two will be the winner. It seems like Energas is ahead in the race.
Energas is a partnership of four local players (including Lucky Cement and Sapphire Group) and Qatar Energy (QE). Qataris are the single biggest shareholders (49%). The assurances and clarity are demand by QE while local partners are merely doing the job of post office. The good news is that most of the issues between government organizations/regulators and Energas are almost resolved. Minster of Energy is meeting Qatar’s energy minister soon, and the minister is confident that the final investment decision (FID) will be taken by the end of January. If that happens, by the summer of 2023, the new terminal would be ready.
However, the government ought to rely on existing terminals in the next winters. Opposition and some circles of media are giving this narrative a spin that due to non-availability of the third terminal, the gas is short this season. And some would be the case in the next. That is twisted logic. Gas is short due to exorbitant international spot prices and defaults of existing long-term providers. The existing two terminals at their peak can handle 12-14 cargos a month. Right now, supply is around 10. And the demand for domestic customers is at a small fraction of current prices. No private terminal could entertain that, and it would be foolish of the government to supply at prevailing spot prices.
The existing terminal players say that the government should let them expand and they can do that by next winters to solve the problem. One problem, as mentioned above, is not about the capacity to handle but of pricing. Second, the existing terminal expansion is welcomed; but ministry of energy wants to diversify the risk by not putting too many (RLNG) eggs in one (terminal) basket. The government is to provide the existing terminals additional 300 mmcfd pipeline capacity till the new terminal to be operational.
Some are speculating that demand is not enough and that is why new players are not coming. K-Electric believes that only one private terminal operator would be bankable, and that is the lucky one to get 125 mmcfd gas order for KE till 2025. That probably is KE’s wistful thinking, not the demand of Energas who is confident to have enough demand from private industrial and transportation sector to sustain.
The question is why are approvals and processes for new terminals taking so long? The government is slow and extra cautious in decision-making. Sui companies fear losing good customers. And private parties being reputable international players have their own requirements. In case of Energas, Qataris are waiting for written assurances on pipeline capacity and general terms since 2019. They continue to do the same. Earlier, the desire for confirmed pipeline capacity (up north) was 600 mmcfd while the government was saying 350 mmcfd and now the company is ready to operate at 300 mmcfd.
They want clear black and white agreements. Naturally, an international investor cannot operate in the grey. The demand is coming directly from Qatar. QE is a state-owned company with strict audit principles, and as a policy they want transparency and avoid any litigation whatsoever as they believe in long term relationships.
The negotiations with SSGC are almost complete. Tie in letter was sent by SSGC on the 7th of Jan, 2022. However, issues with SNGPL are more challenging as SNGPL is trying to potentially avoid losing customers. These need to be resolved. One of the world’s top players in the LNG business is in the queue. The government should focus on delivering what it has promised and should avoid additional complications. And being a friend of Qataris is important for Pakistan energy (RLNG) security and good terms would help bridge the gap, if any, in the supply of RNLG for the next winters.