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Aftab Maken
ISLAMABAD: The ECC of the Cabinet has granted Pakistan State Oil (PSO) authorization to finalize a crucial deal with Qatar Energy to divert 24 to 29 Liquefied Natural Gas (LNG) cargoes scheduled for delivery in 2026. The deadline to close the agreement is November 15, 2025.
The decision comes as Pakistan grapples with a significant surplus of LNG due to a prolonged drop in consumption from the power and industrial sectors, leading to major excess volumes for gas-distribution companies like Sui Northern Gas Pipelines Limited (SNGPL).
The “Take-or-Pay” Predicament and NPD Solution
Under Pakistan’s long-term agreements with Qatar, PSO is bound by “take-or-pay” terms, requiring payment for the contracted gas regardless of whether it is consumed. The Petroleum Division estimates that Pakistan could accumulate approximately 177 surplus cargoes between July 2025 and December 2031, equivalent to roughly 24 surplus shipments per year.
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To mitigate this accumulating debt and logistical stress, the government approved the deployment of the Net Proceeds Differential (NPD) mechanism. This formula allows the diverted cargoes to be resold into the open market.
Key aspects of the NPD formula:
- Losses: Pakistan retains any losses if the resale price falls below the long-term contract rate.
- Profits: Any profits generated from selling the cargoes above the contract rate go to Qatar Energy.
Earlier negotiations confirmed that Qatar Energy is willing to apply the NPD option for 24 cargoes in 2026, though Pakistan had formally requested diversion of up to 29.
Potential Savings and Material Risks
While the diversion is expected to ease storage and pipeline pressures, the financial implications are dual-edged. Media reports suggest the deal could result in potential foreign exchange savings of around USD 340 million, based on term price and cargo value assumptions.
However, the “take-or-pay” structure and the NPD clause expose Pakistan to considerable risk. If global spot prices for LNG fall sharply, analysts warn that losses could reach up to USD 10 million per cargo.
Broader Demand Destruction Challenge
The necessity for this diversion underscores a broader challenge for the country’s energy sector. LNG demand is weakening due to higher Re-gasified LNG (RLNG) prices, reduced gas-burn by the power sector, and the increasing adoption of solar and hydropower alternatives. The Petroleum Division previously reported that the national RLNG system is facing “demand destruction” and logistical strain from the surplus volumes.
Moving forward, the ECC has also tasked the government with preparing policy guidelines to empower the Oil & Gas Regulatory Authority (OGRA) to pass the financial impact—whether positive or negative—of the diverted cargoes onto RLNG and other end-consumers. The finalization of the 2026 Annual Delivery Plan (ADP) with the agreed-upon cargo range under the NPD option remains the immediate priority.
