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Pakistan poised for steep ramp-up of LNG imports

Tue 11 Sep 2018 by Mike Corkhill

Pakistan poised for steep ramp-up of LNG imports

Pakistan has taken three years to import its first 10M tonnes of LNG. The country aims to buy three times that volume annually by 2025

Pakistan imported 4.62M tonnes of LNG in 2017, a 56.6% jump on a year earlier. The country began receiving LNG in March 2015, using a floating storage and regasification unit, the 150,900-m3, 2009-built Exquisite, based at Port Qasim, east of Karachi.

The first terminal is operated by Engro Elengy Terminal Pakistan Ltd (EETP). In July 2018 Vopak acquired a 29% stake in the project, joining Engro and International Finance Corp as an EETP partner.  

The country’s second LNG terminal, Pakistan GasPort (PGP), commenced operations in November 2017 and is again based on the use of an FSRU in Port Qasim. The 170,000-m3, 2017-built BW Integrity, like Exquisite, has the capacity to process 4.5 mta of LNG.

BW Integrity has been taken on a 15-year charter to service the second Pakistan LNG import project. The principals behind terminal operator PGP Consortium Ltd are Fauji Oil Terminal and Distribution Co Ltd and Pakistan GasPort Ltd. 

In June 2018, the first month that the two FSRU terminals were operating at full capacity, the country received a record 11 cargoes totalling 710,500 tonnes. 

The cargoes processed by the EETP and PGP FSRUs are purchased by two government agencies – Pakistan LNG Ltd and Pakistan State Oil. About 80% of the country’s LNG imports are secured under long and medium-term agreements, with the remainder sourced from the spot market.    
Emphasis on gas

Pakistan relies on natural gas to meet almost 50% of its energy needs but its proven gas reserves have dwindled in recent years, as consumption has outweighed new discoveries. Early LNG imports have been substituting for domestic gas, but the intention is to raise the share of gas in the nation’s energy mix by reducing the use of polluting and inefficient furnace oil and expensive diesel oil as power station fuels and increasing LNG purchases.

As of June 2018, Pakistan had imported 10M tonnes of LNG in approximately 160 shipments, saving the country an estimated US$3Bn in fuel bills. Pakistan also uses gas as a road vehicle transport fuel, and rising LNG purchases have helped keep the country’s compressed natural gas fuelling stations stocked up. 

Six additional LNG import projects have been proposed for Pakistan by ExxonMobil, Shell, Trafigura, Total, Mitsubishi and Bahria Foundation. Most are planned for Port Qasim locations. If only four of the new schemes come to fruition, annual LNG deliveries to the country could reach 30 mta by 2025.

In tandem with the growing commitment to LNG, the government is embarking in an US$8Bn investment programme providing new gas transmission pipelines and combined-cycle gas turbine power stations.

Despite the country’s rising gas demand, it is not all plain sailing for developers of new LNG projects. A major challenge is complying with the tax, gas import and local gas regulations laid down by the government. 

Regional political strife also has to be weighed up when considering investments in Pakistan. To the west the deep rift between Saudi Arabia and Iran has forced neighbouring Middle East countries to align with either one or the other while to the east is Pakistan’s long-term nemesis, India.

Despite these geopolitical uncertainties, Pakistan is a country of 200M with a growing requirement for gas and, as such, an attractive market for LNG suppliers and infrastructure providers. Qatar already delivers half of Pakistan’s LNG needs under existing long-term contracts and would like to maintain such a share as the country’s imports rise. 

Gazprom of Russia would like to gain a foothold in Pakistan’s LNG purchase programme but has to be careful not to upset its customers in India, an import market with even greater potential. 

Berthed in Port Qasim waters, BW Integrity entered service as Pakistan’s second LNG import terminal in November 2017

The Gwadar factor

Pakistan has a shortage of port facilities. Between them, Port Qasim and the jetties in neighbouring Karachi handle 95% of the country’s maritime trade. China is keen to develop Gwadar, near the country’s western border with Iran, as a major world port and thus relieve pressure on congested Karachi.

China regards Gwadar as a key interface point on the China-Pakistan Economic Corridor and one of the top projects of its One Belt, One Road initiative. The US$62Bn corridor would link their territory with the Indian Ocean and, early on in the scheme’s development, an LNG receiving terminal at Gwadar was regarded as an integral part of proceedings.

The demand for gas in the remote Gwadar region of Balochistan is relatively small and the project was always envisaged with an associated 700-km pipeline to Nawabshah, northeast of Karachi. Such a link could be integrated with a short spur to the Iranian border to enable gas flows to be augmented by Iranian gas exports to Pakistan under an earlier Iran-Pakistan pipeline deal sealed before the latest round of US sanctions on Iran.

The proposed Gwadar LNG project lapsed in 2017, in the face of the changing political landscape. In this possible LNG-shortfall void a new project has been proposed, a plan by Bahria Foundation, a charitable trust with links to the Pakistan Navy, to use a 170,000-m3 FSRU receiving facility based at Charna Island, 45 km west of Karachi.

While a Charna Island LNG scheme, complete with a pipeline link to Nawabshah, could conceivably open up a new natural gas import route for the country, there are doubts about such a plan due to the acknowledged sensitivity of the marine ecosystems around the island.

Pakistan elected a new prime minister in August 2018. Former cricketer Imran Khan ran on an anti-corruption ticket and is likely to favour rising LNG imports in the years ahead, conducted under open and transparent arrangements between buyers and sellers.          

Likely third terminal

Of the proposed new LNG terminals, that being developed by a joint venture comprising Shell, Engro, Gunvor and Fatima Group is closest to a final investment decision. The plan calls for another 4.5-mta FSRU to be based at Port Qasim, and Excelerate Energy has been lined up to provide the vessel.

The project partners are aiming for a Q2 2020 start date. Unlike the country’s first two FSRU projects, which sell regasified cargoes to government agencies under guaranteed arrangements, this second Engro scheme and all the other proposed new Port Qasim facilities are targeting the private sector. 

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