Govt under pressure to declare force majeure


ISLAMABAD: Federal Government is under pressure to declare force majeure in its liquefied natural gas (LNG) deal with Qatar following a sharp decline in gas demand in the wake of lockdown due to coronavirus spread, sources said.

Petroleum Division is working with Pakistan State Oil (PSO) and two public sector gas utilities - Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Ltd (SNGPL) on a proposal for the federal government to declare force majeure in its long-term deal with Doha in order to halt LNG import that is expensive amid declining oil prices and lower demand.

Pakistan LNG Limited (PLL) already halted the process of international tenders for spot purchase of LNG. Only one LNG cargo of PLL arrived in February against six cargos of PSO from Qatar in the same month.

On March 26, drastic reduction in oil demand in the wake of coronavirus pandemic prompted the government to direct oil marketing companies (OMCs) and oil refineries to cancel their planned import orders of petrol and crude oil from April 1, 2020 onwards.

On March 4, in a letter to Petroleum Division, PSO stated that Engro’s RLNG terminal reduced its regasification rate from 630 mmcfd to 450 mmcfd because of lower off-take by SNGPL. This has resulted in accumulation of inventory equivalent to almost one LNG cargo with a cost of $25 million.

The SNGPL is also warning the government that the reduced consumption of RLNG by the country’s power sector may cause an untoward situation and damage to the SNGPL’s infrastructure.

In a petition for Estimated Revenue Requirement (ERR) for financial year 2020-21, the SNGPL has requested Oil and Gas Regulatory Authority (OGRA) to allow them to take Rs 73 billion receivables from gas consumers and Rs 40 billion for next financial year for supply of RLNG.

An official of Petroleum Division on condition of anonymity told Business Recorder that the matter may be taken up with Qatari government to declare force majeure in order to reduce supplies from Doha.

The power sector is picking up less RLNG - around 140mmcfd than the firm demand of 240 mmcfd in March, sources said.

SNGPL was taking 350 million cubic feet per day (mmcfd), of which 200mmcfd was being used by the zaro rated industry. The industry and other sectors have drastically reduced consuming the imported gas due to near-lockdown in the country, the official said.

Three LNG-based power plants had been installed by the previous Pakistan Muslim League-Nawaz (PML-N) government and these plants were meant to consume the imported gas with a cumulative capacity of about 3,600MW in the public sector at Bhikki, Balloki and Haveli Bahadur Shah in Punjab. The power sector now says LNG is expensive and LNG-based power plants are out of merit order.