The proposed LNG station is offshore Port Qasim, on the southern coast of Pakistan. (Wikicommons)
Despite several visits to the Supreme Court and numerous allegations of favouritism towards particular companies and protectionism by two incumbent, state-owned gas distributors, the government of Pakistan is pressing ahead with its ambitious – and, according to analysts, largely unrealistic – plan to open a $20 billion LNG import terminal by the summer of 2012.
An offshore, 500 million cubic feet per day (14.2 million cubic metres per day: MMcm/d) LNG terminal may be Pakistan’s best option for fighting off a fast-growing gas shortage in the near-term, particularly when compared to the politically controversial proposal to build a pipeline with Iran. But the proposed station offshore Port Qasim, on the southern coast, has been and continues to be shrouded in controversy.
“It’s realistic that Pakistan will build an LNG capacity in the next couple of years, but there will be bureaucratic hurdles to overcome,” Michael Denison, research director of global risk analysis at Control Risks, told Interfax. “Everybody wants a bit of the action, including the Qasim Port Authority and various federal and provincial agencies. So, bureaucracy is going to be an element.”
Referring to the government’s tight deadline, Denison added: “If it was another country, you could imagine it. But in Pakistan it’s difficult.”
Following about two years of accusations, court cases and setbacks, however, Islamabad appears to be doing its best to make a show of fairness and transparency. The Oil and Gas Regulatory Authority (OGRA) announced in October that it had granted licences to three companies for the terminal’s construction(see Pakistan awards three permits for LNG terminal construction, 5 October 2011).
The permits were issued to Pakistan GasPort, a subsidiary of Pakistani energy company Associated Group, Turkey’s Global Energy Holding and Pakistani conglomerate Engro Chemical. Shortly after awarding the licences, OGRA Chairman Sabir Hussain warned that the organisation would take strict action against the three companies if they failed to meet their commitments to the project, according to the Pakistani newspaper Dawn.
“They can face cancellation of capacity allocation and forfeiting of bank guarantee worth $10 million to be deposited by each LNG developer,” Hussain said, according to Dawn on 28 October.
OGRA announced this week that it had allocated a total capacity of 39.6 MMcm/d of LNG to the three companies, beginning in June 2012, and that it had finalised new third party access rules that would allow LNG importers to use the domestic pipeline network. Pakistan’s transmission system at the moment is dominated by state-owned Sui Southern Gas Co. and Sui Northern Gas Pipelines.
Court ruling
Despite the government’s efforts, the project continues to be marred by accusations of irregularities in the tender process involving Global Energy, which entered the competition for permits much later than Pakistan GasPort and Engro but was granted a licence at the same time.
After OGRA sent the three companies a draft of its proposed third party access rules in mid-October, saying that it planned to finalise them two days later, Pakistan GasPort accused the authority of discriminatory, arbitrary and non-transparent decision-making, according to local media reports.
“The authority’s unholy haste and lack of transparency in attempting to steamroll TPA [third party access]rules allegedly customised for a select party will only give rise to controversy and stunt development of the LNG sector,” the company said in a letter to OGRA, according to Pakistan’s Business Recorder.
A spokesperson for Pakistan GasPort could not be reached for comment.
While OGRA has denied the allegations, they are certainly not the first levied against the government and its efforts to build an LNG terminal.
The government initially awarded Belgo-French GDF Suez a contract in February 2010 to supply up to 14.2 MMcm/d to the planned Mashal LNG terminal at Port Qasim. But the Supreme Court of Pakistan annulled the agreement that April, claiming that the Ministry of Petroleum & Natural Resources had bypassed a lower bid by Fauji Foundation, an investment group run by former Pakistani military officers, and European company Vitol.
“The Supreme Court is one of the only independent institutions in the country, so for them to rule that the military private sector arm was overlooked in favour of GDF Suez was surprising,” Benjamin Gage, an analyst for PFC Energy, told Interfax.
Following the court’s ruling, the petroleum ministry proposed to award the contract to Holland’s 4Gas in July 2010, but the plan was once again challenged in the Supreme Court in July this year over claims that the government planned to scrap the tender process that awarded the contract to 4Gas in favour of Global Energy, Interfax understands.
Sensible choice
Even with all the claims of irregularities, the government’s plan to import LNG is a sensible – and critical – one for a country suffering from frequent and widespread blackouts, analysts noted.
Pakistan’s consumption leapt from 19.9 billion cubic metres in 2000 to 30.6 bcm in 2005 and 33.5 bcm in 2010, according to Eni’s World Oil & Gas Review, published in October. The country’s output stood at 33.4 bcm in 2010.
“The supply-demand picture in Pakistan is pretty brutal,” Gage said. “It has the biggest fleet of gas-fired vehicles in the world, and a supply-demand gap of 1 to 2 billion cubic feet per day [28.3 to 56.6 MMcm/d] that could double in the next few years.”
Along with its push for the LNG terminal, Islamabad has significantly stepped up its calls for the Iran-Pakistan link over the past few months (see Pakistan pushes ahead with IPI but delays expected, 18 July 2011). The success of that import option, however, will depend largely on whether Iran and Pakistan manage to raise the necessary funding amid economic sanctions against Iran and the United States’ staunch opposition to the project.
“LNG is a nice, politically logical choice, because it circumvents a lot of the issues around the Iran-Pakistan pipeline,” Gage. “From the financing standpoint, Pakistan is trying to generate the idea of the Iran-Pakistan pipeline. But if they’re as geopolitically savvy as we think they are, this will generate US support for the LNG terminal.”
If Pakistan does succeed in developing the station, it could be in a position to negotiate a sweetheart deal with its Sunni Muslim, gas-rich neighbour – Qatar, he added.
While the timeline for building the regasification terminal may be unrealistic, the actual plan could be within the country’s grasp, Denison noted.
“It looks a bit like the government is posturing to appear as though it’s really pushing, but they probably won’t be able to finish in time. Moreover, if the government is serious, it will need to increase the capacity of the central pipeline network,” he said.
Claims of favouritism dog Pakistan LNG
The proposed LNG station is offshore Port Qasim, on the southern coast of Pakistan. (Wikicommons)
Despite several visits to the Supreme Court and numerous allegations of favouritism towards particular companies and protectionism by two incumbent, state-owned gas distributors, the government of Pakistan is pressing ahead with its ambitious – and, according to analysts, largely unrealistic – plan to open a $20 billion LNG import terminal by the summer of 2012.
An offshore, 500 million cubic feet per day (14.2 million cubic metres per day: MMcm/d) LNG terminal may be Pakistan’s best option for fighting off a fast-growing gas shortage in the near-term, particularly when compared to the politically controversial proposal to build a pipeline with Iran. But the proposed station offshore Port Qasim, on the southern coast, has been and continues to be shrouded in controversy.
“It’s realistic that Pakistan will build an LNG capacity in the next couple of years, but there will be bureaucratic hurdles to overcome,” Michael Denison, research director of global risk analysis at Control Risks, told Interfax. “Everybody wants a bit of the action, including the Qasim Port Authority and various federal and provincial agencies. So, bureaucracy is going to be an element.”
Referring to the government’s tight deadline, Denison added: “If it was another country, you could imagine it. But in Pakistan it’s difficult.”
Following about two years of accusations, court cases and setbacks, however, Islamabad appears to be doing its best to make a show of fairness and transparency. The Oil and Gas Regulatory Authority (OGRA) announced in October that it had granted licences to three companies for the terminal’s construction(see Pakistan awards three permits for LNG terminal construction, 5 October 2011).
The permits were issued to Pakistan GasPort, a subsidiary of Pakistani energy company Associated Group, Turkey’s Global Energy Holding and Pakistani conglomerate Engro Chemical. Shortly after awarding the licences, OGRA Chairman Sabir Hussain warned that the organisation would take strict action against the three companies if they failed to meet their commitments to the project, according to the Pakistani newspaper Dawn.
“They can face cancellation of capacity allocation and forfeiting of bank guarantee worth $10 million to be deposited by each LNG developer,” Hussain said, according to Dawn on 28 October.
OGRA announced this week that it had allocated a total capacity of 39.6 MMcm/d of LNG to the three companies, beginning in June 2012, and that it had finalised new third party access rules that would allow LNG importers to use the domestic pipeline network. Pakistan’s transmission system at the moment is dominated by state-owned Sui Southern Gas Co. and Sui Northern Gas Pipelines.
Court ruling
Despite the government’s efforts, the project continues to be marred by accusations of irregularities in the tender process involving Global Energy, which entered the competition for permits much later than Pakistan GasPort and Engro but was granted a licence at the same time.
After OGRA sent the three companies a draft of its proposed third party access rules in mid-October, saying that it planned to finalise them two days later, Pakistan GasPort accused the authority of discriminatory, arbitrary and non-transparent decision-making, according to local media reports.
“The authority’s unholy haste and lack of transparency in attempting to steamroll TPA [third party access]rules allegedly customised for a select party will only give rise to controversy and stunt development of the LNG sector,” the company said in a letter to OGRA, according to Pakistan’s Business Recorder.
A spokesperson for Pakistan GasPort could not be reached for comment.
While OGRA has denied the allegations, they are certainly not the first levied against the government and its efforts to build an LNG terminal.
The government initially awarded Belgo-French GDF Suez a contract in February 2010 to supply up to 14.2 MMcm/d to the planned Mashal LNG terminal at Port Qasim. But the Supreme Court of Pakistan annulled the agreement that April, claiming that the Ministry of Petroleum & Natural Resources had bypassed a lower bid by Fauji Foundation, an investment group run by former Pakistani military officers, and European company Vitol.
“The Supreme Court is one of the only independent institutions in the country, so for them to rule that the military private sector arm was overlooked in favour of GDF Suez was surprising,” Benjamin Gage, an analyst for PFC Energy, told Interfax.
Following the court’s ruling, the petroleum ministry proposed to award the contract to Holland’s 4Gas in July 2010, but the plan was once again challenged in the Supreme Court in July this year over claims that the government planned to scrap the tender process that awarded the contract to 4Gas in favour of Global Energy, Interfax understands.
Sensible choice
Even with all the claims of irregularities, the government’s plan to import LNG is a sensible – and critical – one for a country suffering from frequent and widespread blackouts, analysts noted.
Pakistan’s consumption leapt from 19.9 billion cubic metres in 2000 to 30.6 bcm in 2005 and 33.5 bcm in 2010, according to Eni’s World Oil & Gas Review, published in October. The country’s output stood at 33.4 bcm in 2010.
“The supply-demand picture in Pakistan is pretty brutal,” Gage said. “It has the biggest fleet of gas-fired vehicles in the world, and a supply-demand gap of 1 to 2 billion cubic feet per day [28.3 to 56.6 MMcm/d] that could double in the next few years.”
Along with its push for the LNG terminal, Islamabad has significantly stepped up its calls for the Iran-Pakistan link over the past few months (see Pakistan pushes ahead with IPI but delays expected, 18 July 2011). The success of that import option, however, will depend largely on whether Iran and Pakistan manage to raise the necessary funding amid economic sanctions against Iran and the United States’ staunch opposition to the project.
“LNG is a nice, politically logical choice, because it circumvents a lot of the issues around the Iran-Pakistan pipeline,” Gage. “From the financing standpoint, Pakistan is trying to generate the idea of the Iran-Pakistan pipeline. But if they’re as geopolitically savvy as we think they are, this will generate US support for the LNG terminal.”
If Pakistan does succeed in developing the station, it could be in a position to negotiate a sweetheart deal with its Sunni Muslim, gas-rich neighbour – Qatar, he added.
While the timeline for building the regasification terminal may be unrealistic, the actual plan could be within the country’s grasp, Denison noted.
“It looks a bit like the government is posturing to appear as though it’s really pushing, but they probably won’t be able to finish in time. Moreover, if the government is serious, it will need to increase the capacity of the central pipeline network,” he said.