Pakistan needs Russian LNG: whether Gazprom has enough of it

Russia will supply LNG to Pakistan. The agreement to this effect was signed by the governments of the two countries. As the Russian Energy Ministry reports, the document is signed for three years with subsequent automatic prolongation for three-year periods. The ministry specified that Gazprom and the Pakistan LNG Ltd state company plan to prepare to sign a long-term contract within two months for the sale of liquefied gas. The Russian LNG will be used by power plants in Pakistan. However, the amount of the deal is unknown. Neither one knows where Gazprom is going to take the LNG.

"Like India, Pakistan is a very promising market. However, in this case, politics has gone ahead of the economy. It's not clear where Gazprom will take LNG for Pakistan", said Igor Yushkov, a senior analyst for the National Energy Security Fund (FNEB). The expert suggests that the most likely option is when LNG to Pakistan will be supplied by the affiliate company of the Russian holding, Gazprom Marketing & Trading Singapore. As early as in 2015, it signed with Yamal Trade, a subsidiary of Yamal LNG, a contract for the purchase of 2.9 million tons of LNG (4 billion cubic meters of natural gas). In April, however, Deputy Energy Minister Yuri Sentyurin said that Gazprom Marketing & Trading Singapore would supply 2.5 million tons per year to India starting from 2018. According to him, as reported by RIA Novosti, LNG supplies to India can come not only from the LNG production project in Sakhalin, but also from the new Yamal LNG plant, the first stage of which Novatek plans to launch in 2017, and also other LNG shipments. Gazprom has a mandatory 20-year contract for the supply of LNG with the Indian GAIL, although Reuters reported that GAIL wanted to review the contract and postpone most of the deliveries. They were planned according to a price formula linked to the price of oil in terminals in India.

"Otherwise, Gazprom will not have its own LNG for Pakistan until 2025, when the third phase of the LNG plant of the Sakhalin project is planned to be put into operation. The Rosneft project is still in the balance", said Igor Yushkov.

However, Pakistan does not yet need large quantities of Russian LNG. As Adnan Gilani, Pakistani LNG Ltd's operational director, S&P told Global Platts late September, Islamabad is currently negotiating contracts on the basis of intergovernmental agreements with dozens of companies from around the world and plans to conclude two or three of them. While they have not started operation, the country needs additional 3 million tons of LNG (4.14 billion cubic meters) per year.

Today, Pakistan LNG Ltd has long-term contracts for the annual supply of 8 million tons of LNG with Qatar and Gunvor, Eni and Shell international traders. Experts estimate that in the next five years, Pakistan's needs for LNG will grow to 30 million tons. A similar forecast of demand is due to the fact that gas production in the country is not growing, and international projects for the construction of gas pipelines (for example, from Turkmenistan to India through Pakistan) are highly uncertain.

"We still need to create an infrastructure to deliver LNG to consumption centers in the north, where 70% of the population lives and three quarters of the industry are situated; the only impediment for increasing consumption in Pakistan,” Adnan Gilani explained to the Platts agency.

As noted by the Kommersant daily, the ports of Karachi and Gwadar in the south of Pakistan and Lahore in the north of the country should be connected by the 1,100 km-long North-South gas pipeline with annual throughput capacity of about 12 billion cubic meters of gas. However, the local ISGS gas supplier has been negotiating transportation terms with companies led by Rostec, RT - Global Resources since 2015. The publication notes that in June the head of the state corporation, Sergey Chemezov, said on the sidelines of the Saint Petersburg International Economic Forum that it had been postponed for 2019 due to the lack of agreement on the tariff for pumping gas, but in early September, Deputy Energy Minister Yuri Sentyurin said that Russian companies are likely to start construction of the North-South gas pipeline in 2018 or even in late 2017. According to the high-ranking official, much depends on the situation with the political crisis in Pakistan. In early August, the government in the country was replaced; the key change was the creation of a new unified Ministry of Energy through the merger of the Ministry of Oil and Natural Resources with the Ministry of Electricity.