Liquefied Natural Gas (LNG) Policy, 2011

Economic Review, January 2012 | Go to article overview

Liquefied Natural Gas (LNG) Policy, 2011


Pakistan's policy for the sustainable development of the energy sector, including the provision of reliable and competitively-priced energy is based on the following objectives:

(a) Optimization of the primary energy mix, based on economic and strategic considerations;

(b) Maximizing the utilization of indigenous energy resources;

(c) Enhancing private sector participation in the energy sector by strengthening the regulatory framework and institutional capacity;

(d) Developing energy infrastructure; and

(e) Developing human resources with emphasis on energy sector-specific technical skills and expertise

Natural gas plays a key role in Pakistan's energy balance which is currently around 50% of the country's primary energy supplies. With accelerating economic growth, the demand for gas is projected to increase sharply and the country's recoverable indigenous gas reserves will be insufficient to meet this demand. Gas shortages have already emerged and shall increase substantially in the following years if indigenous supply is not supplemented through imports. In order to address the shortage, strong emphasis is being laid on importing gas from neighbouring gas-producing countries through cross-border gas pipelines and also in the form of liquefied natural gas ("LNG"). Necessary measures are being taken for installation of LNG receiving, storage, re-gasification facilities and expansion of gas transmission infrastructure, for the distribution and sale of regasified LNG ("RLNG") in the domestic market.

The LNG Policy 2006 has been modified to facilitate expeditious implementation of the LNG Projects.

LNG Import Project Structure

An LNG import project may be structured under one of the following alternatives: (a) Integrated project structure, under which a private or public sector party, joint venture or consortium (hereinafter referred to as "LNG Developer") is responsible for purchasing LNG supplies, transporting them to its LNG import terminal (comprising of receiving, storage and re-gasification facilities) and supplying RLNG to the domestic market and/or for its own use. The LNG Developer would enter into a Gas Sales and Purchase Agreement (GSPA) directly with a Government-designated buyer, gas utility or any customers (hereinafter referred to as "RLNG Buyer(s)"); or

[ILLUSTRATION OMITTED]

(b) Unbundled project structure, under which: i. A Government designated buyer, gas utility, any consumer or any LNG supplier (hereinafter referred to as "LNG Buyer(s) would directly import the LNG under a LNG Sale and Purchase Agreement ("SPA") either on a delivered ex ship (DES) basis, or a free-on-board (FOB) basis, or C&F basis.

ii. For FOB purchase, the LNG Buyer would in addition, enter into an agreement with a shipping company to transport LNG to the receiving terminal.

iii. The LNG Buyer(s) would enter into an agreement with the LNG Terminal Owner and/or Operator (hereinafter referred to as the "LNG TO/O") for the provision of LNG receiving, storage and re-gasification services at its terminal under a tolling agreement.

LNG Procurement

An LNG Developer or LNG Buyer as the case may be, will be allowed to import LNG in accordance with applicable import laws, rules and regulation. While issuing license to an LNG Developer or RLNG Seller, the Oil and Gas Regulatory Authority (OGRA will take into account Government policy guidelines and will adopt following criteria to ensure sustainability of LNG chain:

(a) For the LNG Developer, at least one member of the consortium will be required to have technical and commercial experience along the LNG supply chain.

(b) LNG Developer or LNG Buyer /RLNG Seller will provide evidence of sufficient purchase commitment (in the form of a HOA) from end users for a minimum volume of RLNG sufficient to support the terminal investment and the potential for further sales, if necessary, in order to cover the full contractual LNG purchase commitment. …

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