Pakistan is preparing to renegotiate its liquefied natural gas (LNG) supply deal with Qatar, demanding better terms. The country is facing an economic crisis that has resulted in a drastic reduction in power consumption. Petroleum Minister Musadik Malik said the existing Qatar deal is expensive and that Pakistan will negotiate better terms next year. ¹
The result of this economic crisis has been the excess capacity within Pakistan's power sector. Pakistan, under decade-old contracts with independent power producers, remains bound to pay for this capacity. More than one-third of electricity produced in Pakistan comes from natural gas, and renegotiating the LNG deal with Qatar will, if anything, help take off some of that pressure from Pakistan's treasury.
In December, Malik said Pakistan had delayed a deal to import LNG from Qatar, which delayed the arrival of contracted cargoes until 2026 instead of 2025. Malik explained that this delay was made on account of excess LNG supply. He further explained that no penalties were attached with the deferment. Pakistan had also delayed five LNG cargoes from Qatar and is in the process of deferring five others with other markets.
The renegotiation of the LNG deal with Qatar is a very important step for Pakistan that wants to look forward towards its pertinent economic challenges. The country aims at securing better bargain terms, including lower prices, for reducing its financial burden. Since 2016, the original agreement is in place, and in this scenario, Pakistan aims to utilize the renegotiation clause in order to secure better bargains.²
The LNG deal between Pakistan and Qatar comes with the clause to renegotiate in 2025, but there is no decision yet. According to the petroleum minister, it seems that Pakistan is eager to renegotiate the deal to get better terms. The results of these negotiations will also be of great interest as they can be very significant for the energy sector of Pakistan and the Pakistani economy.
As Pakistan goes through its economic challenges, the renegotiation of the LNG deal with Qatar is a critical step toward securing better terms and reducing its financial burden. Since the energy sector in the country is heavily reliant on natural gas, a favorable outcome to these negotiations could have a positive impact on Pakistan's economy and energy security.
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