After 2025: Power producers reluctant to buy Qatar gas

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VIAZafar Bhutta
SOURCEThe Express Tribune
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ISLAMABAD:  High prices of liquefied natural gas (LNG) imported from Qatar have started impacting power producers who are not willing to purchase gas beyond 2025 – a time when Islamabad and Doha will hold a price review.

Power producers are reluctant to sign a deal with suppliers of imported gas to guarantee fuel offtake beyond 2025.

Power producers feel that re-gasified LNG-based power plants are not economical to run because of high gas prices and they do not fall within top categories in the merit order. This is why existing LNG-based power plants stay shut most of the time.

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However, consumers are bound to pay capacity charges to the power plants if they are not operated at full capacity. LNG terminal operators also receive capacity charges if they are not run at maximum capacity due to low offtake by the power producers.

In a new development, the Power Division has backed off from its commitment of guaranteed gas offtake for a 1,263-megawatt LNG-based power project near Trimmu Barrage beyond 2025, fearing that the project may not fall in top categories in the merit order due to expensive gas.

Also Read: Pakistan-Qatar trade ties

Sources told The Express Tribune that the Power Division had decided to approach the Economic Coordination Committee (ECC) in an effort to press the cabinet committee not to enter into a gas sale-purchase agreement for 66% guaranteed offtake and a power purchase agreement in case of Punjab Thermal Power Plant (Private) Limited (Trimmu power plant).

Gas would not be utilised within the existing guaranteed 66% allocation for three power plants, namely Balloki, Haveli Bahadur Shah and Bhikki, till 2025 without any impact on capacity payments, it said.

The Power Division also said the gas sale-purchase agreement for the Punjab Thermal Power Plant with Sui Northern Gas Pipelines Limited (SNGPL) after 2025 would be formulated in accordance with LNG requirements of the power sector determined through the annual production plan.

The government has already decided that 66% guaranteed gas offtake in case of two LNG-power plants, which are being privatised, will continue till 2025 due to an agreement with Qatar as their contracts have already been signed and have back-to-back cover throughout the supply chain. However, these conditions will be revisited after 2025.

According to the government, in those cases where gas sale and power purchase agreements are to be signed, it would not be prudent to agree to 66% offtake.

Pakistan State Oil (PSO) and Pakistan LNG Limited are importing 800 million cubic feet of LNG per day (mmcfd) on a “take or pay” basis, which means that the two companies would have to pay the cost of gas even if they do not receive supplies due to lower consumption.

The government had set up LNG-fired power plants to justify gas imports, which were linked with these power plants that were bound to take 66% of supplies.

However, the two power plants being privatised will not be bound to ensure gas offtake after 2025 when Qatar gas price will be reviewed.

In coming years, a long-term LNG supply deal with Qatar would be in doldrums as Pakistan government has allowed power producers to import and market LNG on their own.

Other sectors like compressed natural gas (CNG) filling stations and fertiliser companies want to import gas themselves and are not willing to take expensive LNG supplies at a price equal to 13.37% of crude oil under the Pakistan-Qatar deal. In a tender for spot LNG purchase, Pakistan LNG Limited has received the lowest bid of 9% of crude oil price in the winter season.

The previous Pakistan Muslim League-Nawaz (PML-N) government has faced criticism over signing a 15-year LNG deal with Qatar. Critics suggest there should have been a clause for gas price review after every five years.

However, according to the agreement gas price will be reviewed after 10 years. Owing to that, the power sector is not ready to guarantee gas offtake after the first price review in 2025.

Published in The Express Tribune, January 2nd, 2020.

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