LNG: An Expose`

How tragedy became an opportunity for Sharifs?

In the precarious world of politics, might is usually right. For Pakistan’s young 66 years, the country has faced a turbulent history of a ping-pong game of democracy and dictatorship. Elected governments rule in uncertain situations, stacking up policy decisions like a house of cards, afraid of the unexpected breath of military rule blowing it all away.

 In May 2013, Nawaz Sharif’s government was elected to power for the third time in Pakistan’s history. With great power came the knowledge that the previous government had left a legacy of corruption that could not so easily be scrubbed away. Mr. Ten Percent, as he was colloquially called, had seemed to strike again, as wads of cash were unaccounted for. There was the sneaking suspicion that even the Iran-Pakistan gas pipeline had the highest portion of payments reserved for the former President.

However, Pakistan’s new government and bureaucracy promised transparency and accountability in the PML-N manifesto. Government officials were quick to criticize the corruption of their predecessors. Time and time again they made sanctimonious statements denouncing the earlier system of venality, showcasing themselves as the light at the end of the tunnel, promising a new regime: hope.

Dark clouds, though, have an uncanny way of casting shadows on even the brightest of days. The new government was faced with crippling power cuts and a gas shortage of 2bcf/day. For the common man, it was a scene out of George Orwell’s Animal Farm: the faces had changed, the problems were the same.

The reality hadn’t changed much for the Government either. Money was power, and they were running short on it. Loan payments to the IMF, Circular Debt, dealing with a current account deficit were just some of the problems. Money wielded political influence after all, and they needed a way out.

Pakistan had two options to import natural gas: through pipelines or though LNG. Politics wasn’t letting the Iran-Pakistan Gas Pipeline through, and Turkmenistan-Afghanistan-Pakistan-India (TAPI) too seemed a distant dream with an unstable Afghanistan. Then there was liquefied natural gas (LNG)… To the Minister of Petroleum and Natural Resources, LNG seemed like a breath of fresh air – a panacea to his problem, and the nation’s.

Caution, however, is something that’s integral to politics. The Minister, an amateur in the Energy Sector and born with a silver spoon in his mouth was not wary of the labyrinth of the oil and gas sector. His industry experience and business acumen had not prepared him for misinformation in the public sector. On a steady diet of myths posed as facts on the LNG, he saw LNG as the only route out.

Unbeknownst to the Minister– a mere pawn in the larger chess of energy politics – even LNG could be the kiss of death, however. The Ministry was adamant that LNG from Qatar would be around $17/mmbtu, a high price linked to an oil-index, Brent Crude. That’s what gave it away, really. The Ministry had not done their homework, and got caught in the web of numbers – an intricate mesh that reeked of possible corruption. 

With countries importing natural gas for much lower prices, and under the changing dynamics of the global natural gas, with the Shale Gas Revolution, India had just made a deal for $10.50/mmbtu from the US company Cheniere. Pakistan and Qatar had agreed on a price of $10.3/mmbtu, sources such as the LNG Saga by G.A Sabri said. But if it was around $10/unit for Pakistan too, where was the figure of $17/mmbtu coming from? After all, this difference of $7 spelled a loss of about $5 billion every year for the country. Why would a country sign up for a deal that seemed something akin to Harakiri?

 The statements continued, and the headlines were splashed with LNG. Pakistan would import LNG from Qatar by November 2014. At what price? $17/mmbtu, said the Ministry: “the objective would be to get the cheapest possible price but it could be around $17 per MMBTU^[1].” It seemed like the Minister was already trying to make up the mind of the nation, preparing them for the worst, while simultaneously sabotaging the bidding process. The misinformation continued, with false assumptions that a long-term LNG deal with Qatar can have a price around LNG spot prices. The main point and purpose of a long-term contract is that a long-term deal is more reliable, and has a cheaper price. But with LNG spot prices soaring up to around $19/mmbtu, the figure of $17/mmbtu isn’t too far off.

Moreover, there was misinformation on the cost of transportation. One official in the Ministry was quoted as saying “We have talked about importing LNG from the US where natural gas price is in the range of $4-5 per mmbtu, which after gasification is $7.5 per mmbtu, but transporting it to Pakistan and delivering it to the terminal would cost another $7 per mmbtu.”

If Qatar was to get around $10/mmbtu (Sabri, LNG Saga), from a country that is not too far (reducing shipping costs), where was the rest of the money going? In somebody’s pockets. Whose exactly? It’s uncertain at the moment. The facts are there though: the media was silenced to not draw attention to LNG too much, the Taliban carried out their farce of creating bloodshed, distracting from the economy and other problems, paying off American senators and the international media, and then there was the strategic plan: show the nation a clean face, talk of transparency, and in the desperate need for natural gas, a  few masterminds were to get away with it all. Until now.

Close tracking of the activities of a few masterminds committed to mint money through the LNG deal with Qatar had a pattern similar to the PPP regime’s scam in the Iran-Pakistan pipeline project.

The time to act is now. As the Ministry concentrated all its attention to LNG, other important projects such as possible Shale Gas development took a backseat. If one looks at the gravity of the situation, and the $5 billion net annual profit for a two-decade deal, it is shocking to see that multinational companies earn much lesser every year.

The table shows that the loss that Pakistan would have faced at a high priced LNG deal is much higher than the profit earned by India’s multinational companies. Even top Indian multinational companies can never think about such a hefty profit, but in one sweeping deal, it seems that our leaders may sound the death knell of an already weak country.

Moreover, even major corporations such as Boeing, earn profits that are less than this loss that would be incurred by the LNG deal. Similarly, the major cola companies, with their products available everywhere, from the smallest general store to major department stores the world over will have earnings in parallel to this. Abbott Laboratories, with their indispensable product with an inelastic demand, whose products range in thousands of dollars, available in almost every medical store and pharmacy across the globe have a net profit of about $4.7 billion, LESS than what our folks will be making in this LNG debacle.

This is another industry set up by a few criminal masterminds. It seems that the Finance Minister Dar nexus with Notorious Pharmacist Musadik Malik  , a possible white-collar crime that would have been one of the biggest ones in history, hatched the plan. Unless this deal is stopped, Pakistan may face a loss of 140 billions of dollars over 25 years.