US energy giant ExxonMobil has pulled out of a deal with Pakistani consortium Energas for the construction of a liquefied natural gas (LNG) import terminal near Karachi, officials of both business entities confirmed while talking to Arab News.
“This is part of our ongoing review to find further efficiencies and strengthen the company for the future,” ExxonMobil spokesperson Alvin Foo said in an email from Singapore. “The decision does not impact our Downstream and Chemical business in Pakistan, and future investment opportunities in Pakistan will be evaluated,” he added.
In 2018, ExxonMobil had signed an agreement with Energas to support the development of Pakistan’s third LNG import terminal. According to the document, the construction work had to be carried out at Port Qasim at an estimated cost of $150 million, and the facility had to be built to accommodate 750 million cubic feet per day (mmcfd) or about 5.6 million tons LNG per year.
At present, Pakistan has two LNG terminals that handle imported gas for domestic consumption. The combined capacity of these terminals is 1.2 billion cubic feet per day.
The Pakistani consortium has a combined balance sheet of $5.7 billion and an annual turnover of $3.2 billion, along with investments in power generation projects in the country with a capacity of 2,000 megawatts.
While acknowledging the technical support provided by ExxonMobil, Energas officials said the American company’s exit would not have a major impact since it had no equity stakes in the project. They added that all regulatory approvals and licenses had already been obtained and the construction of the terminal was likely to start within the next two months.
In May 2018, ExxonMobil acquired 25 percent stakes in offshore drilling in Pakistan at Kekra-1 near the Pakistan-Iran border. Other consortium partners were Government Holdings Private Limited, Pakistan Petroleum, Italian exploration giant ENI and the Oil and Gas Development Corporation (OGDC) of Pakistan. While it was initially said that the site had bigger reserves than those in Kuwait, the project was abandoned last year when the government announced that nothing had been found.
Although the ExxonMobil spokesperson did not comment on the impact of Kekra-1 drilling failure, he said that his company was looking at measures to reduce expenses arising out of market conditions and price reductions.
“ExxonMobil is evaluating all appropriate steps to significantly reduce capital and operating expenses in the near term as a result of market conditions and commodity price decreases,” Foo said.
US-based experts say ExxonMobil has slashed its budget after suffering financial losses amid the coronavirus pandemic.
“ExxonMobil has reduced its capital budget. They are in the shale gas business here and suffered substantial losses due to price decline,” Masood Abdali, an energy expert, told Arab News from Texas. “Also, their business was not going well globally.”
Abdali, who previously served as business development manager of Weatherford in Saudi Arabia and Bahrain, believes that Pakistan’s market is difficult since it is risky for foreign companies.
“Pakistan’s market is very difficult and the risk is very high. Therefore, the operating cost remains high for foreign companies,” he said.
Source: Arab News