ISLAMABAD: Pakistan may prefer import of liquefied natural gas (LNG) from Qatar if Pakistan and Iran fail to reach an agreement on gas pricing under Iran-Pakistan-India (IPI) gas pipeline project. Pakistan has communicated to Iran to link the gas price to 70 percent crude oil against its demand of 78 percent. According to the sources, import of LNG from Qatar may be cheaper, as it would not require laying of expensive gas pipeline.

The sources revealed to the Business Recorder on Tuesday that the Petroleum Ministry, in its presentation to the Prime Minister last month, informed him that there was little difference between the price of LNG from Qatar and proposed gas imports from Iran under the Iranian gas pricing formula.

As such, the Petroleum Ministry officials proposed to the Prime Minister to import LNG from Qatar. The sources noted that LNG price was 12 dollars per MMBTU, while the price of Iranian imported gas would be 11 dollars per MMBTU at 100 dollars per barrel crude oil price.

The government had issued letter of executivity to Fargas Company, authorising it to finalise the deal with Qatar for the import of LNG, the sources said, adding that the government would not be a party to this deal till June 2009. Fargas has an agreement with Sui Southern Gas Company Limited (SSGCL) regarding the import of LNG from Qatar.

According to the sources, the Petroleum Ministry has worked out that Iranian gas would be feasible only for power generation and it would be costly for domestic and commercial gas consumers. According to the comparison, based on 40 dollars crude oil price, the cost of nuclear-based power generation is 4.1 cents/Kwh, 8.8 cents/Kwh from the imported gas; 8.8 cents from Thar coal; nine cents from imported coal; 10 cents from oil and 12 cents/Kwh from wind source.

In new gas pricing formula, Iran has sought gas price revision after one year from commencement of the project and subsequent revision in gas price every three years. Iran also wants co-relation between contract price and weighted average price of gas exports.

Earlier, the two sides had agreed on correlation between Japan Cocktail Crude (JCC) and LNG. Iran also wants to replace the clause of “Acts of War” with “War between States” in force majeure element. The Petroleum Ministry has projected a gas shortfall of 10.34 billion cubic feet gas per day by the year 2015 as indigenous gas supply would decline to 2.16 bcfd against the current gas supply of 4.3 bcfd due to depletion of gas reserves. The demand of gas will stand at 12.5 bcfd by 2015.

A pre-feasibility study has been undertaken on the IPI project and a bankable feasibility study as well as Front End Engineering Design (FEED) is required to be undertaken to approach prospective investors and financiers.

Source: Business Recorder