Natural Gas, LNG

February 18, 2025

Pakistan plans to renegotiate LNG prices under 15-year contract with QatarEnergy

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HIGHLIGHTS

QatarEnergy contract most expensive among Pakistan’s term LNG contracts

Concerns over declining demand and losses at state energy firms

May look to renegotiate other long-term LNG contracts

Pakistan's government plans to review the price of LNG under its 15-year term contract with QatarEnergy due to a sharp decline in electricity consumption and financial difficulties, an official with knowledge of the discussions told Platts.

LNG contracts typically allow various terms, such as prices to be renegotiated at certain intervals, but it can only be done if there are justifiable changes in market conditions and if both parties are agreeable. Price reviews have previously been seen in Southeast Asia and Australia.

Pakistan plans to renegotiate the original price structure, which was signed at a slope of 13.37% of Brent, due to falling power demand and amid a push to discourage expensive electricity supplied from LNG-fired power plants, according to the official.

The country's state companies have already deferred five LNG cargoes under the long-term contract with QatarEnergy and expect more LNG cargoes to be deferred going forward, the official said, citing energy ministry meetings to curtail state losses on energy sales and the adverse impact of resulting intercorporate debt on the economy.

Pakistan State Oil's long-term 15-year LNG contract with QatarEnergy, with a volume of 3.75 million mt/year, will complete 10 years in 2026 and provide the counterparties with the option of renegotiating the price or terminating the contract at this milestone, the official said.

QatarEnergy did not immediately reply to queries.

While the long-term LNG contract allows for a price renegotiation at the 10-year mark, it is not a straightforward process and commercial reasons have to be provided to trigger the renegotiation, market sources said separately.

The LNG contract also has other clauses that allow the parties to walk away if the negotiations are unsuccessful or to extend the contract for up to 20 years at a new price level, the sources said, adding that the challenge comes from current gas demand trending lower than volume contracted.

Besides the 15-year contract, Pakistan State Oil has a 10-year LNG contract with QatarEnergy for 3 million mt/year that started supply in 2022 at a 10.2% slope of Brent. Pakistan LNG Ltd also signed a 15-year contract with Italy's Eni starting 2017, at a 12.14% slope of Brent for the final 10 years' supply.

The renegotiation clause is similar to the 10-year timeframe, and there is a possibility of renegotiation with Eni in 2026, the sources said.

Singapore-based market observers have said that price reviews have been becoming increasingly common for long-term LNG contracts and are likely to increase due to extreme market movements, as counterparties seek to maintain business relationships.

Long-term contracts

Pakistan has also signed an agreement to import one LNG cargo each month under a government-to-government framework agreement with Azerbaijan's state-owned Socar depending on the demand and supply situation. The official said the contract is priced lower than the term contracts with Qatar.

Pakistan LNG had another 5 with Gunvor for five years ending in 2022 at an 11.624% slope of Brent.

This means the 15-year LNG contract with QatarEnergy was among the most expensive LNG cargoes being shipped into Pakistan, and with spot LNG cargoes currently more expensive at around $15/MMBtu.

Pakistan usually imports between 120 and 140 LNG cargoes annually, with the majority (about 85-100) coming under long-term contracts with Qatar, and the remaining from other long-term agreements and spot purchases.

In January, Sui Northern Gas, the country's biggest gas distributor requested Pakistan LNG to defer 11 LNG cargoes from Eni in 2025, due to faltering demand. The state-run distributor supplies gas to electricity generation units in the eastern province of Punjab.

The country's overall electricity generation fell 3% to 66,641 Gwh in the six months ended Dec. 31, 2024, government data showed.

The country has not imported spot cargoes for nearly a year due to surplus electricity capacity in the system and a decline in consumption, ranging from 2% to 18% in different months.

Pakistan's LNG imports in the six months ended Dec. 31, 2024, fell 4% to $2.002 billion compared with $2.298 billion in the same period last year, according to data from Pakistan Bureau of Statistics.

Table: Pakistan's long-term LNG contract prices

Contract Price (% slope of crude) Dates Duration Note
PSO-QG 13.37 Feb 2016 - Jan 2031 15 years Signed with former Qatargas
PLL-Gunvor 11.6247 Jun 2017 - Jul 2022 5 years
PLL-Eni Year 1, 2 - 11.6247 Dec 2017 - Nov 2032 15 years
Year 3, 4 - 11.95
Year 5-15 - 12.14
PSO-QP 10.2 Jan 2022 - Dec 2032 10 years Signed with former Qatar Petroleum

Source: Energy ministry documents



Haris Zamir, Suyash Pande and Eric Yep

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