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UNCLAS SECTION 01 OF 02 ISLAMABAD 002665 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV EFIN ECON EAID ENRG PK
SUBJECT: PAKISTAN'S PETROLEUM MINISTRY ON POSSIBILITIES FOR 
IMPORTED LNG 
 
¶1. (SBU) Summary: In response to its chronic and worsening 
natural gas shortage, the GOP will "most likely" award 
contracts to two firms -- 4Gas and a Vitol-FOTCO consortium 
-- to build floating LNG re-gasification terminals, according 
to Ministry of Petroleum and Natural Resources Special 
Secretary G.A. Sabri.  He said the GOP had set an internal 
deadline of December 31 to formally approve the projects as 
well as to enter into long-term LNG supply contracts.  The 
terminals would be completed in 18 to 24 months and supply up 
to 800 mcf/day of natural gas.  The high BTU fuel would be 
used primarily for power generation, not domestic use.  Sabri 
said Sui Southern Gas Pipeline Limited (SSGPL) had the 
capacity and finances to quickly build the 20 km of pipeline 
needed to off-take the gas, but worried that the Port Qasim 
Authority's (PQA) lack of technical and organizational 
capacity to dredge the required navigation canal could delay 
the projects.  If the LNG projects go as planned, it would be 
a significant step to close Pakistan's current 600 mcf/day 
gas shortfall, preventing the imposition of draconian gas 
rationing measures and adding up to 4000 MW to the national 
power grid.  End Summary. 
 
Gas Shortage Growing Acute 
-------------------------- 
 
¶2. (SBU) Despite almost daily reports in the media of 
draconian GOP plans to address Pakistan's chronic natural gas 
shortage - including cutting off supplies to all commercial 
enterprises two days per week, rationing of compressed 
natural gas (CNG) used for automobiles -  Ministry of 
Petroleum and Natural Resources Special Secretary G.A. Sabri 
told S/SRAP Senior Economic Advisor and Econoff October 27 
that it is unlikely that any of these measures will be taken. 
 Although Pakistan's current natural gas shortfall of some 
600 million cubic feet per day (mcf/d) is expected to 
increase to 1100 mcf/d within the next 12 months, Sabri said 
that the GOP would, in all likelihood, continue to manage 
winter demand as it has in previous years by limiting gas 
supplies to industry, especially cement and fertilizer. 
 
LNG is the Answer 
----------------- 
 
¶3. (SBU) That being said, Sabri said the GOP recognizes that 
it must take steps to address its dwindling gas reserves, as 
well as its ongoing power shortage.  Sabri said the GOP would 
"most likely" approve two floating liquid natural gas (LNG) 
re-gasification terminals.  Both would be located in Port 
Qasim, an industrial area in Karachi.  4Gas would build a 
terminal capable of processing 440 to 510 mcf/d; a 
Vitol-Fauji Oil Terminal (FOTCO) consortium would build a 
terminal capable of processing 290 mcf/d.  He said the 
projects would require the construction of jetties, land 
based storage facilities, as well as the use of floating 
re-gasification and storage units (FRSUs).  There currently 
is no plan to turn the projects into higher-capacity, onshore 
re-gasification facilities, though Sabri did not rule this 
possibility out for the future.  (Note:  The 4Gas project 
proposal includes a second-phase, onshore facility, which 
could process up to 2000 mcf/d) 
 
¶4. (SBU) Sabri said the GOP was wary of depending on the spot 
market for supplies and intended to enter into long-term LNG 
supply contracts for the facilities.  He explained that it 
would be politically difficult to enter into unpredictable 
obligations for gas supplies.  Having returned October 26 
from negotiations in London between Shell and Minister of 
Petroleum and Natural Resources Naveed Qamar, Sabri said 
Shell would most likely be the lead gas supplier to the 
Vitol-FOTCO facility.  He mentioned BP, GDF Suez and 
Mitsubishi, however, as possible fuel suppliers for 4Gas. 
 
¶5. (SBU) Sabri said he would head a three-person committee 
with Ministry of Planning Energy Member Pervaiz Butt and 
 
ISLAMABAD 00002665  002 OF 002 
 
 
Ministry of Finance Additional Secretary Iqbal Awan to 
finalize the LNG negotiations by the end of December.  He 
said the projects would then be presented as a combined 
package to the Economic Coordination Committee (ECC) for 
final approval. 
 
Logistical Challenges 
--------------------- 
 
¶6. (SBU) Sabri said Sui Southern Gas Pipeline Limited (SSGPL) 
would have little difficulty building 20 km of pipeline 
necessary to connect off-loaded gas supplies to the existing 
network.  He worried, however, that the Port Qasim Authority 
(PQA) lacked the operational and technical capacity to dredge 
a navigation canal, as well as provide night navigation, for 
LNG tankers in a timely manner.  He requested the USG work 
with the Ministry of Petroleum to push the PQA to move 
quickly on the port improvements. 
 
More Cost Effective Than Iranian Gas? 
------------------------------------- 
 
¶7. (SBU) The imported gas would be used for power generation, 
as it is a higher BTU than gas produced domestically, making 
it unsuitable for household use.  Sabri said it was 
technically possible to water the gas down for domestic use 
by injecting nitrogen, but that there was no compelling 
reason to do so.  The 800 mcf/d supply of gas could produce 
roughly 4000 MW of power (Note: The net gain to the power 
sector will be less than 4000 MW, depending on whether the 
new gas supplies would be directed towards new power plants 
or used to replace less efficient fuel oil in existing ones. 
End note.)  Sabri said he would put together a cost study of 
the landed price of LNG-supplied gas versus gas that could be 
delivered through the proposed Iran-Pakistan pipeline. 
 
¶8. (SBU) Comment: A viable alternative to the Iran-Pakistan 
pipeline, importing LNG will be an important step in 
relieving Pakistan's natural gas and electric power shortages 
and deserves full USG support.  In addition to 4Gas, Post 
understands at least two other players are looking to enter 
the LNG re-gasification arena: Associated Group and Engro. 
While we must be cautious of even appearing to choose winners 
for the LNG facilities, American-owned companies such as 4Gas 
could benefit from OPIC support.  Furthermore, the USG can 
potentially be helpful in addressing some of the potential 
infrastructure bottlenecks, in particular the deepening of 
the Port Qasim navigation channel and provision of night 
navigation equipment.  According to one of the largest 
operators at the port, the cost for these improvements could 
reach $100 million.  Post will assess the feasibility of 
providing technical and financial support to the PQA to help 
make LNG re-gasification a reality.  End Comment. 
PATTERSON