Pakistan Awards LNG Contract To GDF Suez

Government of Pakistan awarded a contract to GDF Suez to supply 3.75 million tons per annum of liquefied natural gas (LNG) for a period of 20 years. This is the country's first gas import project and efforts are still being made to allow Shell to import additional 2.5 million tons during the same period.

The decision was made in the Economic Coordination Committee (ECC) of the cabinet presided over by Finance Minister Shaukat Tarin in Islamabad on Tuesday 09, February 2010 .

By 2011 deadline for the first LNG supplies will be met. The project envisages supply of up to 500 million cubic feet per day of gas. The price of LNG imported from GDF Suez will be $1.8 billon lower than the rates offered by Shell in the first six years, the import price will be around $9.3 per MMBtu said, G A Sabri, senior petroleum ministry official.

"GDF Suez agreed to sell us LNG at a price far less than what Shell was offering. We have held meetings with both the suppliers and selection of GDF Suez won't result in further delay. A final agreement with a consortium of 4Gas, which will run the LNG import terminal, is expected in few weeks," said Mr. Sabri.

GDF Suez will start supplying the gas to Pakistan by Oct. 2011 according to the initial six-year contact. . The company may also supply 1.5 million tons of LNG annually for the following 14 years under the contract, G.A Sabri said.

Last month on 14th January 2010, Petroleum Minister, Syed Naveed Qamar, said significant progress had been made to meet oil and gas demand, particularly in the short and medium term, especially through LNG imports. Two proposals were under consideration of the petroleum ministry for LNG imports. The first project was the extension of Mashal project of Sui Southern Gas Company (SSGC), which was a land-based re-gasification unit. The second proposal was from a major European company in the SSGC system by establishing a floating re-gasification unit in Karachi. Mashal LNG project was delayed by the government while Sui Southern Gas Company (SSGC) had started work on the project in 2005 whose completion will ensure supplies of gas, and help the economy.

Even after the announcement by ECC, Shell continues to contest the decision. Before the decision was publicized higher officers of Shell held meetings with Petroleum Minister Syed Naveed Qamar and senior officials of the finance ministry.

Initial statement released by ECC said, "the ECC also decided that Shell's offer at 15 per cent Brent plus $0.5 per MMBtu, subject to further improvement in the final round of negotiations will be accepted for up to one MTPA medium-term supplies of six years and 2.5 MTPA from the seventh to 20th year."

The official statement said the ECC also approved a $500 million sovereign guarantee by the finance ministry to cover LNG supplies.

The Finance Minister ordered Finance Secretary, Salman Siddique to issue a revised decision statement after deleting the controversy regarding the acceptance of Shell's offer and hence, revised statement did not say anything about the Shell offer.

Recent energy falls in Pakistan, as the natural gas reserves have depleted and has caused a great decline in Sui gas field production, LNG is the most appropriate option to meet energy shortfall. Officially gas shortage has reached 25% of the production and power crisis is worsening day by day. These projects are aimed to overcome the power crisis in Pakistan and many more such projects are in pipe line.