Pakistan LNG trajectory dramatically changes course

Pakistan’s LNG trajectory has taken a dramatic turn. The country is no longer keen on locking in as many contracts for the super-cooled fuel as possible but is now attempting to defer nearly 200 cargoes for future delivery.

Islamabad recently asked state-run QatarEnergy to defer the cargoes as it forecasts a gas supply surplus until 2031, reflecting weakening domestic demand for imported LNG. Pakistan’s LNG consumption dropped to its lowest level in five years, averaging around 914 MMcf-per-day in the year ended June 30, 2025, according to S&P Global Commodity Insights.

Pakistan currently imports nine LNG cargoes per month from Qatar (five under a 15-year contract and four under a 10-year contract). Complicating matters, there’s a take-or-pay clause in its Qatari LNG contracts, obligating acceptance or payment regardless of demand.

Pakistan’s Economic Coordination Committee (ECC) has also authorised formal negotiations. But it’s been an uphill battle. This follows two long-term sale and purchase agreements signed by Pakistan State Oil (PSO) with QatarEnergy in 2016 and 2021. Pakistan LNG also signed a 15-year supply contract with Italian gas giant Eni in 2017.

The ECC decision comes amid mounting pressure on Pakistan’s foreign exchange reserves and a $5.6 billion obligation from existing purchase agreements, the Daily Times reported.

Adding more headwinds, Pakistan’s 2016 LNG contracts with Qatar are indexed against Brent crude at a 13.37% slope. That’s substantially higher than its neighbours in the region, creating intense political and economic friction. India, for its part, recently renegotiated its Brent crude LNG index to a more favourable 12.66%. For several years Islamabad has complained about its LNG cost differential, claiming that it put the country at a disadvantage.

Reflective of how difficult it can be for other South Asian countries to negotiate advantageous LNG deals, Bangladesh’s new long-term LNG contracts (signed around 2023-2024), have a Brent crude indexation between 13.20% to 13.50%, plus a constant (fixed add on) of $0.40-$0.50 per MMBtu.

Narendra Taneja, a New Delhi–based independent energy analyst, told Gas Outlook that Pakistan’s deferments “have more to do with its hard-currency issues and the internal gas-evacuation infrastructure and the economics associated with it.”

As new LNG import terminals expand capacity, Pakistani officials now fear a glut could overwhelm local distribution and undermine already fragile fiscal balances. Extra supply recently pushed the Regasified LNG (RLNG) pipeline pressure past 5.17 billion cubic feet (bcf), exceeding the system’s safety threshold and forcing authorities to shut down domestic gas fields, a move that risks irreversible well damage.

Islamabad is also heavily constrained by the Net Proceed Differential (NPD) clause in its Qatari contracts. While the resale is intended to offload supply, any profit from the sale is retained by Qatar while leaving Pakistan to incur the entirety of the loss if the cargo sells below the fixed contracted price.

The take-away for Pakistan can’t be missed. They are forced to sell the un-needed LNG, yet get none of the upside if prices rise, only the downside if prices fall. The question normally follows: Why would Pakistan ink these obvious seller-favoured terms? They reached the deals out of a position of extreme vulnerability and necessity, handing Qatar a clear advantage that it’s exploiting.

Moreover, long-term LNG Sale and Purchase Agreements (SPAs) are usually highly complex, and legacy sellers — like Qatar — prefer established buyers with excellent credit ratings. Pakistan had a very poor credit rating at the time it signed the contracts, including a history of delayed payments, making Western super-majors hesitant to commit to 15-year deals.

Qatar was one of the few global sellers willing to guarantee large volumes to Pakistan over the long term. Essentially, the contracts were signed as a “take it or leave it” proposition during a Pakistani national energy emergency.

Market pressure

Pakistan‘s LNG deferments will also impact the LNG spot market in Asia. It could also prompt other Asian buyers to reassess their exposure to long-term LNG off-take deals. Un-needed Pakistani LNG will also inject unexpected, flexible supply back into the market, which can exert downward pressure on spot prices in the region.

Pakistan’s actions may also offer a small, short-term dip in current global spot prices, but the ultimate cost is that the country will pay more expensive long-term prices because sellers no longer fully trust its commitment to multi-decade contracts.

Jane Smith, Senior LNG Market Analyst at Wood Mackenzie, recently commented that when a large buyer like Pakistan defers a cargo, it’s not an isolated event, but it immediately frees up capacity for the supplier, typically a major portfolio player, who can then offer that volume to a buyer with immediate demand.

A recent Reuters’ piece highlighted its impact on overall market volatility, claiming that “Pakistan’s consistent pattern of default or deferral during periods of high domestic gas surpluses, or, conversely, when spot prices spike too high for its budget, has become a predictable, if unwelcome, source of latent supply in the Asian spot market.”

“It’s a key factor contributing to short-term price volatility,” it added.

Coming full circle, the immediate crisis is now moving beyond finance and into operational necessity. In a climactic move, Pakistan formally requested in mid-October that QatarEnergy divert 24 cargoes from its 2026 delivery plan to the international market for resale.

This decision, driven by plummeting domestic gas demand, mounting financial strain, and dangerous pressure on the gas transmission network, proves that the short-term benefit of initial deferments has been eclipsed by the enduring, one-sided costs of its rigid contracts, keeping Pakistan stuck in a cycle of instability.

(Writing by Tim Daiss; editing by Sophie Davies)