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UPDATE 4-Pakistan gives green light to five LNG terminal plans

Fri, 20th Sep 2019 06:39

(Adds Trafigura)

By Rod Nickel

ISLAMABAD, Sept 20 (Reuters) - Pakistan has given the
go-ahead to five consortiums, including Exxon Mobil,
Royal Dutch Shell and Mitsubishi, to progress
with their liquefied natural gas (LNG) terminal plans, a
minister told Reuters on Friday.

The move comes on the heels of the arrests of two Pakistan
business executives involved in building the country's previous
LNG terminals, cooling sentiment in the industry.

Pakistan is seen as a big growth market for the global LNG
industry as domestic gas production slips in tandem with a
growing industrial economy hungry for gas.

But an anti-corruption drive by Prime Minister Imran Khan
led to the arrests of a former boss of Engro, which
built the first import terminal, and the chief of another
company associated with a second terminal.

Power and Petroleum Minister Omar Ayub Khan downplayed any
impact the arrests may have had on investors' sentiment, saying
the interest from multinationals spoke for itself.

"That is a ringing endorsement that (our) policies are clear
and transparent," he said. "It's a competitive market."

The groups approved to progress are Tabeer Energy, a unit of
Mitsubishi, Energas with partner Exxon; Pakistan GasPort and
commodities trader Trafigura; Engro with partner Shell, and
Gunvor with Pakistani conglomerate Fatima.

Tabeer Energy, Engro and Energas already announced plans for
the terminals which will be Floating Storage and Regasification
Unit (FSRUs) vessels. These can be newbuild or converted LNG
tankers, speeding up the delivery of the import projects.

Exxon and Shell did not respond to requests for comment.
Mitsubishi has project details on Tabeer Energy's website.
Engro, Fatima and GasPort were not immediately reachable for a
comment.

Trafigura declined to comment on the specific project but
said it was "committed to grow and expand its existing regas
(regasification) capacity" in Pakistan.

The five groups must submit plans for the terminals to the
ministry of ports and shipping by Nov. 5 for approval, but
cabinet has already approved them, Khan said, adding they could
be in operation within two to three years.

While the consortiums will pay for the construction of the
terminals and royalty fees, Pakistan's contribution will be to
fund the building of a $2 billion north-south pipeline to
distribute the gas, and storage facilities, he said.

SIGNIFICANT DENT

Pakistan is chronically short of gas for power production
and to supply manufacturers such as fertiliser makers, hobbling
the country's economy.

Its two LNG plants have a capacity of 4.5 million tonnes a
year (mtpa) each. Khan said a third 4.5 mtpa terminal could
start next year. Imports amounted to 6.7 mtpa in 2018 and are
set to rise to 7.9 mtpa this year, according to Refinitiv data.

The new terminals "will make a significant dent in the gas
shortage," Khan said.

But the under-utilisation of one terminal points to a
structural problem in Pakistan's energy industry, analysts have
said, which is characterised by subsidised but dwindling
domestic gas rivalling more expensive LNG.

"I think they are assessing the demand as the second LNG
terminal is currently underutilised," one industry source said.
"Domestic gas is cheaper and LNG is expensive. Plus we have some
coal plants which are cheaper than RLNG fired power plants."

The fertiliser industry, a large consumer of gas, has
suffered from a steep increase in government-set prices, Sher
Shah Malik, executive director of Fertiliser Manufacturers of
Pakistan Advisory Council, told Reuters.

Two of Pakistan's urea plants lack gas to run regularly and
one closed last year, forcing Pakistan to import fertiliser.
Malik said LNG, priced at international benchmarks, was often
too expensive for fertiliser companies pointing to a need to tap
new domestic gas reserves.

"We are heading for very difficult times," he said. "If
nothing happens, we'll be high and dry."
(Reporting by Rod Nickel in Islamabad; additional reporting by
Sabina Zawadzki in London and Jessica Jaganathan in Singapore;
editing by Tom Hogue, Jason Neely and David Evans)

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