PM Shahbaz Sharif’s government gearing up to sign long-term LNG deals to rid Pakistan of load shedding and gas shortage

According to media reports, the Pakistan government is planning to sign a long-term liquefied natural gas purchase deal in a bid to secure future supply and ease crippling blackouts. Shahid Khaqan Abbasi, who is overseeing the energy sector for Prime Minister Shehbaz Sharif, shared the details of the plan in an interview and said:

The South Asian nation intends to float a tender to purchase one LNG cargo per month for 10 to 15 years. The government is still deciding the timeline for when to issue the tender, which they will use to gauge the market response and pricing.

Mr. Abbasi further shared that the government will also speak with LNG suppliers in the Middle East, including Qatar, the UAE, Saudi Arabia, and Oman, for a long-term contract. He claimed that the government is also not ruling out a potential gas supply agreement with Russia.

Previous and Future LNG Contracts

Asian LNG spot prices are trading at a seasonal high after Russia’s invasion of Ukraine exacerbated an already tight market. Pakistan was forced to purchase several expensive LNG shipments from the spot market to keep the lights on last month. Long-term deals are much cheaper than current spot rates and may provide some relief for Pakistan’s government.

Speaking about previous LNG deals, Mr. Abbasi said:

I signed several long-term LNG supply deals with Qatar, Eni SpA, and Gunvor Group in 2016 and 2017. However, Eni and Gunvor have canceled several scheduled cargoes to Pakistan in the last year, exacerbating the nation’s energy shortage and fueling political instability. The suppliers backed out by paying a 30% penalty on the cost of the shipment, which is envisaged in the contracts if they cannot deliver. 

Speaking about future deals, Shahid Khaqan Abbasi shared:

The government will keep the 30% clause in future deals. It is standard in contracts. Pakistan is also open to signing a 30-year contract to make sure it has enough fuel to power its economy well into the future. Today, the industry’s longest deals rarely top 20 years.

The Need for long-term LNG Contracts

Pakistan depends on overseas LNG for power generation. The country suffered badly from the surge in spot prices and supply disruptions. The current government has resorted to planned blackouts to conserve its dwindling supply of fuel, leaving residents struggling with massive load shedding.

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