Pakistan’s Surprising Gas Import Decision: LNG from Azerbaijan Amid Local Production Cut
ISLAMABAD:
Pakistan has decided to import liquefied natural gas (LNG) from Azerbaijan next month, a move that comes after deferring LNG deliveries from Qatar and reducing local gas exploration in response to an oversupply of imported gas.
Pakistan LNG Ltd (PLL), a state-owned entity, convened an urgent board meeting on Sunday to review the current gas demand and supply situation. The board is expected to reconvene on Monday to approve the LNG offer from Azerbaijan, according to sources from the Petroleum Division.
Sui Northern Gas Pipelines Limited (SNGPL), responsible for gas supply in Punjab, Khyber Pakhtunkhwa, and Islamabad, has requested at least one LNG cargo for January, anticipating a supply shortage.
This move has surprised many, as the government has been asking local producers to reduce supplies while deferring more affordable LNG deliveries from Qatar until 2026 due to the glut in the system. Short-term LNG contracts are generally more expensive than long-term agreements like those with Qatar, though the exact price will be revealed on Monday when the bid is opened.
This development came just days after Petroleum Minister Dr. Musadiq Malik announced the deferral of five LNG cargoes from Qatar, citing the oversupply in the market. Pakistan, typically facing gas shortages year-round, has been dealing with a surplus due to weak large-scale manufacturing growth and low electricity demand.
According to the energy ministry, Pakistan expects a shortage of one LNG cargo in January, but surpluses should be available starting in February. Despite the surplus of imported gas, local production is being curbed by 250 to 300 million cubic feet per day (mmcfd).
The LNG will be sourced from Azerbaijan’s State Oil Company (SOCAR), with the bid to be opened on Monday evening. Last month, the Economic Coordination Committee (ECC) approved a sale-purchase agreement between Pakistan State Oil (PSO) and SOCAR.
SNGPL has formally requested the cargo to meet its January demand, and SOCAR has confirmed it will submit an offer for LNG supply under the framework agreement on Monday. The offer will remain valid for two hours.
Some members of the PLL board have raised concerns about SOCAR’s past performance in supplying LNG to Pakistan and plan to discuss the issue internally.
Pakistan is also requesting local producers to scale back gas exploration due to LNG imports, with one producer reducing output by 50 mmcfd in November and being asked to cut by another 100 mmcfd.
Petroleum Minister Dr. Malik explained that while SNGPL’s projected gas demand in January is 1,850 mmcfd, the available supply will be only 1,750 mmcfd, even with full utilization of local gas. The shortfall will be addressed by importing LNG from Azerbaijan.
This marks a significant shift in Pakistan’s energy strategy, as the country relies heavily on gas imports and faces challenges balancing supply and demand.
Under the 2017 Inter-Governmental Agreement (IGA) between Pakistan and Azerbaijan, SOCAR represents Azerbaijan’s Ministry of Energy, and PSO represents Pakistan. Both countries are committed to enhancing cooperation in LNG, crude oil, and LPG supply, as well as joint construction of terminals and storage for hydrocarbons.
The payment terms under the agreement stipulate that each cargo invoice must be paid within 30 days, with interest charged on overdue payments.
