MASHAL LNG PROJECT IN THE DOLDRUMS
THERE IS A WRANGLING OVER THE CONTRACT AWARDING.
TARIQ AHMED SAEEDI
Jan 10 - 16, 2011
Pakistan Mashal LNG Project is still waiting for a final approval from the economic coordination committee (ECC), which is to decide about who (contractor) should be responsible to import liquefied natural gas from Qatar or anywhere else and deal with the gas induction in the system. Following finding some reported irregularities in the awarding of contract, it is worthwhile to mention, the Supreme Court of Pakistan had ordered review of the profile of the contractor in March 2010 and asked the ministry of petroleum to announce a fresh tender.
It was reported that ministry of petroleum had chosen a controversial global consortium to deal with the $20 billion Pakistan Mashal LNG Project (PMLP). This consortium comprises of Dutch firm 4Gas, French firm GDF-Suez, and Carlyle Group as LNG supplier, and has caused a conflict of interest between two ministries of the ruling party. Ministry of law allegedly wanted to expunge the name of 4Gas-GDF as successful contractor while petroleum ministry was currying support for the consortium.
Giving single choice to ECC also raised doubts over the transparency in the selection of contractor. Some reports went on the extent of saying that 4Gas group did not participate in the tender process, and was barged into from the backdoor. However, it is also a fact that Sui southern gas company, the project facilitator, tested the eligibility of the consortium as contractor before recommending it to the petroleum ministry. Now, the ECC has to take decision.
Pakistan Mashal LNG Project has been envisaged five-year ago to add 3.5 million tonnes LNG - equivalent to 500 million cubic feet per day natural gas-in the system from an offshore terminal to be established at a Karachi seaport, but it has been delayed for long because of the political obstacles in its way. Qatar was said to be the source of LNG supply to Pakistan since the country is the leading supplier of LNG from the Middle East and becoming a world name in liquefaction of natural gas.
Pakistan's government is more likely to award within a month the contract of importing liquefied natural gas and developing regasification terminal to 4Gas that will supply 500 mmcfd gas for at least fifteen years, according to a source privy to the developments.
A highly placed source confided within a month PMLP contract would be awarded to the integrated developer, dispelling the impression that the project laid unattended in the economic coordination committee of the cabinet for permit on the ground of purported fragile financial health of 4Gas.
LNG project is a mega project not only because of its capability to add substantial gas in the system, but also because it would be first of its kind in the country. There will be a need of engineering inductions to make use of LNG and for its regasification. It is interesting to note that building terminal will not require heavy investments. An estimate says the terminal will be set up at a cost in between 200 to 250 million dollar. With IFC's (International Finance Corporation) equity funding, this is certainly not a capital-intensive venture. On the other hand, the project has other international credit provider and sponsors from the contractors, who all are desperate to embark on the project. The problem is uncalled for delay, which is increasing the cost of the project, as well as draining out from the country the much-needed foreign exchange on import of oil and other petroleum products. Pakistan had to spend $4.3 billion to import crude and refined petroleum products during the first five months of the current fiscal year (2010/11). Normally, import of petroleum products forms 30 to 35 per cent of annual import bill of the country.
It is feared that LNG will also not be a cost-effective substitute to the imported petroleum products since its cost would be pegged with the international oil price, which has been a subject to extreme volatility in the recent past; rather international oil price has transformed local energy tariffs highly irresponsive to the local buying capacity that is weakening gradually. The best example is of LPG price indexation of which with the international oil rate makes it subject to regular hikes. Analysts said LNG local price would be linked to the international crude and gas rates. But, it is not clear would it be similar or in some percentage as may be agreed in gas purchase agreements with Iran or Turkmenistan.
PMLP is said to be materialised in a short period and in contrast to any other temporal overland pipeline projects, it will be ready to serve the system within a short time. An understandable reason is ready-to-use SSGC system that will be available for the gas to be transferred from the terminal at the port, whereas long pipelines are to be laid down to import gas from Iran or Turkmenistan (approximately 1600km from Iran and 27,00km from Turkmenistan). A senior official told PAGE the gas from the LNG terminal for consumption would be in the system within 20 to 24 months after the developer gets green signal from the government. "The project is viable because of its providing solution to the energy crisis in a short span when compared to time-consuming imports from Iran or Turkmenistan."
Given the energy crisis in the country, experts are optimistic about the expansion of energy basket by overland gas pipeline or imported gas via sea as after all gas is cheap source of energy as compared to imported fossil fuels. Gas production is not increasing as fast as its demand is over the period in Pakistan. Domestic consumption of gas is rising because of the vicious population growth and abnormal demographic changes, desultory rural to urban migrations. Without exploring other sources of energy, which is essential to spur economic growth, it is difficult to achieve energy security and sustainability. Consumption of gas, which has 50 per cent share in the total energy mix, has been growing an average six per cent for the last five years.