Jun 1, 2022

(Bloomberg) -- Pakistan aims to sign a long-term liquefied natural gas purchase deal in a bid to secure future supply and ease crippling blackouts.

The South Asian nation intends to float a tender to purchase one LNG cargo per month for 10 to 15 years, said Shahid Khaqan Abbasi who is overseeing the energy sector for Prime Minister Shehbaz Sharif. The government is still deciding the timeline for when to issue the tender, which they will use to gauge the market response and pricing, Abbasi said in an interview.

Sharif’s government will also speak with LNG suppliers in the Middle East, including Qatar, the UAE, Saudi Arabia and Oman, for a long-term contract, according to Abbasi. Pakistan last week said it’s not ruling out a potential gas supply agreement with Russia.

Pakistan depends on overseas LNG for power generation, and was hit particularly hard by the surge in spot prices and supply disruptions. The cash-strapped government resorted to planned blackouts to conserve its dwindling supply of fuel.

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Asian LNG spot prices are trading at a seasonal high after Russia’s invasion of Ukraine exacerbated an already tight market. Pakistan was forced to purchase several expensive LNG shipments from the spot market to keep the lights on last month. Long-term deals are much cheaper than current spot rates, and may provide some relief for Pakistan’s government.

Abbasi, who is a former prime minister and energy minister, signed several long-term LNG supply deals with Qatar, Eni SpA and Gunvor Group in 2016 and 2017.?

However, Eni and Gunvor have canceled several scheduled cargoes to Pakistan in the last year, exacerbating the nation’s energy shortage and fueling political instability. The suppliers backed out by paying a 30% penalty on the cost of the shipment, which is envisaged in the contracts if they cannot deliver.?

The government will keep the 30% clause in future deals, said Abbasi, who explained that it is standard in contracts.

Pakistan is also open to signing a 30-year contract to make sure it has enough fuel to power its economy well into the future, said Abbasi. Today, the industry’s longest deals rarely top 20 years.

?2022 Bloomberg L.P.