‘Import of LNG under G-to-G from Qatar’ PSO underscores need for agreement ramp-up

ISLAMABAD: Pakistan State Oil (PSO) has proposed to the government to request Qatar Gas for early ramp-up of second agreement from July-22 instead of July-24 for one additional cargo of Liquefied Natural Gas (LNG), aimed at bridging gap of demand and supply, well informed sources told Business Recorder.

This proposal “import of LNG under G-to-G with Qatar” will be considered by the Price Negotiation Committee to enhance supplies from Qatar under existing contracts and possible implications of price review and renegotiation of existing Qatar contracts.

PSO under the agreement can ask for Annual Upward Flexibility Quantity (AUFQ) of five cargoes in a year before October 01 for the upcoming year; (i.e. three cargos against first contract and two cargos against second agreement).Qatar Gas (QG) shall accept such a request subject to delivery and operational capacity.

PSO says that in the event Qatar Gas accepts upward flexible cargoes, PSO cannot cancel such cargo once exercised during that year. All the additional cargoes will become part of the annual contractual quantity attracting take or pay clause of the agreement.

According to the Annual Upward Flexibility Quantity (AUFQ), in 2014, four cargoes of 12,800,000 MMBTU of LNG were imported, followed by one cargo of 3,200,000 MMBTU and one cargo of 3,050,000 MMBTU in 2021. However, in 2020, one cargo of 2,872,800 MMBTU was also imported under Annual Downward Flexibility Quantity (ADFQ).

During Sep-21 PSO exercised its option for 5 additional cargoes under both contracts upward flexibility clause during CY 2022. However, Qatar Gas has declined PSO’s request on the basis of delivery capacity limitations.

According to the contract PSO can again request for additional cargoes from time to time subject to 90 days’ advance notice and Qatar Gas can consider the same request on case to case basis subject to available operational/ delivery capacity. Considering non-obligatory option on part of Qatar Gas coupled with current market scenario, additional product availability situation remains uncertain.

Excess seller LNG and other provision of the agreement: - In case PSO desires to purchase LNG in excess of the existing contractual under both agreements, it may notify Qatar Gas the quantity of excess LNG required under the terms and conditions of these agreements. Qatar Gas, at its sole discretion, shall accept or decline to offer to sell such excess LNG quantity to the buyer within 30 days from the date of receipts such request.

Under the provision of “excess seller LNG”, if the parties so agree, the excess seller LNG shall be added to the ACQ of each subsequent contract year during the course of the agreement.

According to clause 28.2 of the pact, the agreement may not be amended, modified, varied or supplemented unless agreed by the parties in writing.

However, clause 28.3 says no waiver is implied. The failure of either party to require the performance of any provision of the agreement shall not affect its right to require future performance pursuant to such provision.

The rights of a party shall not be prejudiced or affected by any delay for forbearance which it might allow or show in enforcing the same. Performance of any condition or obligation to be performed hereunder shall not be deemed to have been waived or postponed except by an instrument in writing signed by the party who is claimed to have granted such waiver or postponement.

Contract Price Review: Under both contracts either party may give a notice (price review notice) to the other party to renegotiate the contract price in March 2026; however, no review of contractual quantity is available.

Subsequent to the price review notice, the parties shall meet in good faith and discuss the matter with a view to agreeing what price adjustment (if any) is required. If the parties agree on the price revision same shall apply from the review date pursuant to clause 15.2.5 &15.2.6(e) for first and second agreements respectively. Once the price negotiation is exercised neither party is entitled to give a further price review notice to the other party till the end of contract.

In case the parties have not agreed on price adjustment, within a period of six months from notice issued, either party may terminate first agreement upon giving notice to other party and such shall come into effect at the end of that contract year. However, second agreement instead of termination provides referring the matter to arbitration.

PSO will explain that during the price review period all supplies will be priced on a provisional basis under the formula prevailing prior to the price adjustment and subsequently adjusted and reimbursed together with the interest for such deliveries and paid by the party from which it is due.

The agreement shall remain in full force in case parties have not reached an agreement on price adjustment, unless and until terminated (in case of first agreement).

PSO is of the view that considering all provisions of the agreements and associated limitation/ implication, the best option for securing additional supplies would be through requesting Qatar Gas for early ramp up under the second agreement from July22 instead of July 24 as this will add one cargo per month from July 22.

According to PSO, Qatar Gas can be approached under available provision.

Copyright Business Recorder, 2022