ISLAMABAD: Pakistan LNG Limited (PLL) on Wednesday received just three bids for two spot LNG cargoes, with prices ranging from $15.97 to $19.39 per MMBtu.
These bids are higher by $3-4 per MMBtu mainly because of the high premium included in the bid price on account of LC confirmation charges, country risk, and more importantly, most of the spot LNG suppliers think that Pakistan has the least interest in business.
“The LNG suppliers also come with high bids when it comes to Pakistan, as they know that Azerbaijan’s SOCAR will be asked to provide the distressed LNG to PLL below the lowest bid that it received,” a senior official at the energy ministry told The News.
“Interestingly, SOCAR also offered the Pakistan LNG Limited on Wednesday evening an LNG cargo just below the lowest bid of $15.97 that Vitol had submitted.”According to sources, PLL has also decided to purchase LNG at $15.97 per MMBTU from Vitol, and one is to be procured from SOCAR just below the price bid for Vitol, which was not part of the bids.
As per the details, an LNG trading company, Trafigura, submitted two bids for the two LNG cargoes: one bid of $18.39 per MMBtu for the LNG cargo to be delivered on December 7-8, and the second bid of $19.39 for the cargo to be delivered on December 13-14. However, PLL got a single bid from Vitol for $15.97 per MMBtu.
The official sources said that Pakistan had received the bids higher by 3-4 percent, at least as in the international market spot, LNG is available at $13-13.5 per MMBtu.
The LNG trading companies had come up with higher bids just because of the high premium. And if Pakistan asks SOCAR to provide LNG just below the lowest bid price submitted by Vitol, the next time PLL issues tenders seeking spot LNG cargos, they will never get a response from LNG trading companies, and if they submit their bids, prices will be on the higher side.
When contacted PLL MD Masood Nabi repeatedly and was sent questions on WhatsApp, asking why Pakistan received higher bid prices if PLL has decided to procure LNG from Vitol and if it will use the bids to procure distressed LNG from SOCAR, a state-owned entity of Azerbaijan, but he didn’t respond.
The official said that the bids may be used as price discovery to procure LNG from SOCAR.Pakistan LNG on July 23 in Azerbaijan had signed an LNG deal with SOCAR in the presence of the then premier Shehbaz Sharif for one year with the option to extend for another year.
Under the framework agreement, SOCAR will offer distressed LNG supply to Pakistan in the form of one cargo per month, on flexible terms, and with a credit line for 30 days after delivery of the cargo on a one-year contract basis that is extendable by another year.
SOCAR, under the agreement, is bound to provide one LNG cargo per month, with an offer made 45 days before the relevant delivery window. Each cargo offer will have a specified validity period, during which PLL can accept or reject the offer. The pricing of LNG will be denominated in US dollars and offered by SOCAR to PLL.
“Under the agreement with SOCAR, Pakistan will decide whether it wants to purchase LNG cargo at the offered rate or not. If we don’t purchase it, we will not have to face any financial penalty, which is a big step forward between the two brotherly countries.”The agreement was signed after the ECC had allowed PLL to execute a proposed framework agreement with SOCAR Trading.
Each offer will include the applicable demurrage rate expressed as a fixed amount in US dollars per day and pro rata for each part of a day. PLL and SOCAR will sign a confirmation notice at the time of the offer for any cargo accepted by the former. It is pertinent to mention that an inter-governmental agreement had already been signed between the governments of Pakistan and Azerbaijan on February 28, 2017, for cooperation in the field of energy, and Pakistan LNG Limited (PLL) and State Oil Company of Azerbaijan (SOCAR) and its subsidiaries were nominated to negotiate necessary contractual details on the LNG project.
Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL) are currently importing LNG under long-term LNG supply contracts to minimise the gap in demand and supply of gas under the three pacts.