The Qatar Pakistan LNG deal is once again under scrutiny. The pattern usually follows the announcement of tender commercial evaluation. Once again, the long term LNG deal with Qatar signed at 13.37 percent of Brent is being criticized in some circles for having cost Pakistan millions of dollars and how this was a badly negotiated deal, and how Pakistan would do better to just scrap it midway from a deal between two states and start buying LNG from the spot market.
Only that, the LNG market does not work that way. One could argue that the Qatar deal could have been negotiated better than it was in terms of pricing. But to say that Pakistan is losing millions of dollars by sticking to it instead of opting for the spot market is grossly unfair and factually incorrect. The supply glut in the Asian LNG market is a very recent phenomenon which has seen spot LNG prices down to $6/mmbtu and under.
A little context would help. The latest commercial evaluation report for LNG tenders for May and June reveal the lowest bid at 9.68 percent of Brent, with an average of 9.73 percent of Brent for six cargos. This is of course pricier than the Qatar deal, which at 13.37 percent of Brent would cost $8.8/mmbtu as against $6.5/mmbtu on spot rates.
But the need is to view things on a larger scale over a longer timeline. Long term contracts are also aimed at ensuring the timeliness and reliability of supply. The glut in the LNG market is a very recent phenomenon and will not last forever. Pakistan has had moments when it failed to receive any bids for the tenders floated in the spot market. Surely, that is a situation Pakistan can least afford. The Qatar deal is not all the LNG that will come to Pakistan anyways. You can have all the LNG in the world at spot rates, other than the Qatar deal, once all the terminals are up and running.
In the 12 tenders so far, the LNG from Qatar has only thrice cost Pakistan more than what was on offer in the spot market. So in the true sense, the long term deal has actually saved Pakistan tens of millions of dollars, and not the other way around. Some circles are referring to the LNG Japan Korea Marker (JKM) benchmark to be used instead. Little do people know that the amount of time it takes for the LNG to be shipped from Japan coupled with the port costs associated with the LNG business – do not really make it an attractive bid.
The Petroleum Minister does not necessarily come across as the smartest in the Cabinet – and has retracted more statements than he has taken meaningful decisions. Industry sources have confirmed that contrary to what is being spread as news, there were no offers made by either Saudi Arabia or Malaysia to supply LNG at significantly cheaper rates. Pakistan would do well to honor the long-term Qatar contract, and in the meanwhile, nothing stops the government to keep looking for more venues from where to buy LNG from. Pakistan is going toned a lot of it in the future always.
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