15-year LNG deal with Qatar to be based on take and pay mode

ISLAMABAD: The 15-year $16 billon LNG deal with Qatar will be based on take and pay mode under which PSO will be liable to pay for all quantities in case it fails to purchase the product.
However, the seller will be having 20 percent liability in case LNG is not delivered or substandard product is delivered to PSO and in case off spec LNG is delivered where neither PSO nor the seller was aware of that LNG was outside specification, then the cap on liability will be at 25 percent, a senior official while quoting the summary on the LNG deal said.
The deal is being pitched in the next ECC, most probably to meet Thursday or Friday next, for approval he told The News.
He also divulged that PSO wants the RLNG consumers to pay the port charges to be paid by the state-owned oil marketing company in excess of $320,000 (being the maximum payable to Qatargas company under sales purchase agreement). PSO argues, he added, that since it will pay the port charges in excess of $320,000, so they should be a part of the RLNG tariff.
The LNG price has been agreed with the Qatargas Company (QG2) under the government-to-government arrangement at close to 14 of the three months’ average price of Brent in SLOP form for 15 years time. SLOP form means that in case the price of Brent goes up, the LNG price will also surge accordingly and when Brent will go down in world market, then LNG price will also tumble in the same proportion as per the formula.
Under the deal, Qatar will supply 1.5 million tons per annum million (MTPA) of LNG in the first two years which will increase to 3 MTPA from the third year (2018) onward to 2030. The contract will end by December 2030. However, there will be price review provision in the agreement allowing each party to seek a price review after 10 years period and if not agreed, sale/purchase agreement will be terminated.
To be precise, the LNG price deal has been finalised somewhere between 13.70 to 14 percent of three months average price of Brent in SLOP form for 15 years. The Nawaz government did not opt for the pricing formula under ‘S’ curve with no constant factors, the officials dealing with LNG are of the view that under ‘S’ curve both the sides had to lock the low limit and high limit prices and this is tantamount to inviting the wrath of NAB. They said the LNG price deal was better under the ‘S’ curve but in a country like Pakistan it is not possible for a politically-elected government as some ‘powerful elements’ can use the deal based on the ‘S’ curve as a scam.