Future LNG terminals; ''Government not to provide any financial subsidy, off-take guarantee''

The Economic Coordination Committee (ECC) of the Cabinet has decided that the government will not provide any financial subsidy and off-take guarantee for future Liquefied Natural Gas (LNG) terminals, sources close to Minister for Petroleum told Business Recorder. The decision was taken by the committee headed by Finance Minister, Asad Umar held on March 5, 2019 which was ratified by the federal cabinet last week. The Petroleum Division has been directed to submit a summary on RLNG pipeline projects to the ECC in its next meeting.
Ministry of Maritime Affairs stated that being cognizant of the traffic congestion at Port Qasim due to upcoming LNG vessels, it was decided that the main channel of PQA shall not house any more LNG terminals to ensure that port remains functional for other cargoes. The meeting was apprised that although there was no specific study, identifying a specific LNG Zone, however, PQA Board, in its resolution of May 7, 2011, had identified Jharri Creek/Chann Wado as a potential LNG zone for future LNG terminals.
The Ministry of Maritime Affairs on December 13, 2018, directed PQA to undertake a scientific study, through a third party consultant/firm. PQA has initiated the process through an advertisement in the press on February 10, 2019 for hiring of a consultant/firm to undertake LNG Zone study. The study is expected to be completed within six months. Ideally, the process of setting up of an additional LNG terminal should be initiated after the scientific study, however, in view of the projected demand of LNG in the near future, the ECC in its decision of February 12, 2019 directed Ministry of Maritime Affairs to expeditiously finalise the proposal for setting up of an additional LNG terminal and submit it to the ECC.
According to sources, Ministry of Maritime Affairs further stated that in view of urgency, Jharri Creek/ Chann Wadoo ma be the most appropriate area for establishment of additional LNG terminal, owning to the following advantages: (i) LNG terminal in Jharri Crek/ Chann Wadoo will have no adverse impact on normal port traffic, as the site is on alternate channel, away from the main port, which would be connected through a pipeline network of about 25 Kms; and (ii) the drought/depth at the location is also feasible, which will accommodate LNG carriers/ Q Flex vessels.
Ministry of Maritime Affairs was of the view that the third LNG terminal may be developed at the identified LNG Zone in the vicinity of Jharri Creek/ Chann Wadoo. It was stated that the existing two LNG terminals at Port Qasim had been contracted on take-or-leave basis costing government more than $0.5 million per day, which places undue financial burden on the government. There is also a need to ensure that the supply of LNG is not interrupted due to war/ any other contingency. The government needs to ensure that Floating Storage Re-gasified Unit (FSRU) is not withdrawn by the owner on any pretext what so ever.
Ministry of Maritime Affairs submitted proposals for consideration and approval of the ECC: (i) fast tracking the additional LNG terminal in the vicinity of Jharri Creek/ Chann Wadoo within 22 months with direction PQA to expedite process of grant of licence; (ii) future LNG terminals would await result of the scientific study undertaken by PQA; and (iii) all future LNG terminals shall be contracted without any guaranteed payments by the government, on BOT basis.
During ensuring discussion, the forum observed that no study has been carried out during the last ten years which could indentify: (i) LNG future requirement; (ii) number of terminals required to cater to future requirement; (iii) appropriate zones for establishment of such terminals; and (iv) their optimal utilization. Therefore, there is a need to establish additional LNG terminals on fast track basis, as existing LNG terminals are not sufficient to meet future requirement.
The ECC directed Ministry of Maritime Affairs to expedite scientific study for identification of suitable exclusive LNG zone at Karachi Ports for establishment of land based LNG terminals viz-a-viz FSRU.
It was also observed that existing site at Port Qasim had sufficient space for additional LNG terminals. However, the site immediately needs dredging and widening to provide easy access to ships as well as reducing the time in approaching the terminals. ECC directed Ministry of Maritime Affairs to explore possibility of establishment of additional LNG terminal i.e. existing site of LNG terminals along with identifying the cost required for dredging and widening of main channel. Moreover, the Government should not provide any financial and off-take guarantee for future LNG terminals.
It was pointed out that a pipeline of 25 kilometre length will be required from the proposed site i.e. Jharri Creek for transportation of RLNG. It was stated that the expenditure of the laying of pipeline will be borne by the developer of LNG terminal and it will be included in the contract agreement. The ECC also observed that there should be a comprehensive study for installation of pipeline for upcoming regions.
After detailed discussion the ECC took the following decisions: (i) to expedite scientific study for identification of suitable exclusive LNG zone at Karachi Ports for establishment of LNG terminals. The study will also look into all aspects of land based LNG terminals viz-a-viz FSRU; (ii) to take all necessary measures for establishment and operationalization of 3rd LNG terminal by winter 2020; and (iii) to explore possibility of establishment of additional LNG terminals at main channel i.e. existing site of LNG terminals along with identifying the cost required for dredging and widening of main channel.