Pakistan, Russia in talks for LNG trade

ISLAMABAD: In a major development, Russia has communicated to Pakistan that its LNG export terminals will get ready in 2026 for gas trade with Pakistan.

Both countries are seriously pondering over LNG transactions in future as in 2026, the price re-opening clause with Qatar under two long-term agreements under GtG [government to government] arrangements would be invoked, a senior official at the Ministry of Energy told The News.

“Pakistan first inked a 15-year LNG deal with Qatar in February 2016 at 13.37 per cent of the Brent with a reopening clause after 11 years. Then it signed on February 26, 2021, a 10-year LNG deal with Qatar at 10.2pc of the Brent with a reopening clause after five years.

“Likewise, the country’s 100pc owned Pakistan LNG Limited in 2017 also inked two-term agreements with LNG trading companies, ENI and GUNVOR. Currently, Pakistan is getting five cargoes per month from Qatar at 13.37pc of the Brent, four cargoes under 10.2pc of the Brent under GtG deals and is also getting one cargo every month at 12.14pc of the Brent from ENI,” added the official.

The official said that the ENI is bound to provide to Pakistan LNG Limited (PLL) a total of 180 cargoes in 15 years at the PGPL terminal moored in Port Qasim. The PLL had also signed in 2017 a five-year term agreement with the GUNVOR at the price of 11.62pc of the Brent. The term agreement with the GUNVOR ended in July 2017.

Under both contracts with Qatar, the price re-opening clause would be invoked in 2026. Under the clause, if in 2026 the LNG market is driven by sellers, then Pakistan will have to adopt the seller’s new price and if the market is moved by the buyers, Qatar will have to honour the price to be pitched by Pakistan. If there exists no agreement between both parties, any party may terminate or walk away from the contract.

The officials said that price review negotiations between Qatar as LNG producing and supply country and Pakistan as LNG buying country will initiate in March 2026. In case, the price is not agreed within six months, any party may terminate or walk away from the contract. Under this scenario, the offer from Russia of LNG holds significant importance.

“The LNG price with Qatar in the case of Pakistan may also be set pursuant to arbitration which shall consider price of similar contracts signed by India and Bangladesh buyers and effective during 2024, 2025 and 2026.

Russians are in talks with Pakistani counterparts at the top level for the LNG deal. The talks started after the meeting of Prime Minister Shehbaz Sharif with Russian President Vladimir that was held on the sidelines of the Shanghai Cooperation Organisation (SCO) summit earlier in July, 2024. However, both sides are working out the mechanism of payments in the presence of US sanctions against Russian’s oil and gas transactions. “We have to cease the deal with landed cost of LNG from Russia at prices to be offered from Qatar in 2026 under re-opening clause.

“We are expecting the LNG glut in the global market owing to which LNG prices would reasonably tumble in the time to come and hopeful that Qatar in 2026 would reduce the price of LNG under two GtG contracts for Pakistan for the remaining period of the agreements,” according to the official.

As far as the LNG contract of 15 years between the PLL and the ENI is concerned, the officials said the agreement was signed for 15 years till 2032. However, after 10 years in November 2027, any party could give notice to walk away on the price issue. “If any party gives a walk-away notice, LNG supplies from ENI shall end in March 2028.”

“In Pakistan, LNG consumption has reduced manifold mainly because of the low growth rate in the country for a long time and the government functionaries want the rescheduling of the LNG cargoes from Qatar so that it could handle the line pack pressure.”