Italian Eni earned $550m reneging on Pakistan LNG

Singapore: Eni SpA earned about $550 million by canceling and then reselling contracted liquefied natural gas promised to Pakistan over the last two years, which exacerbated the Asian nation’s energy shortage, according to an analysis by two nonprofit groups.

The Italian energy major failed to deliver a number of scheduled shipments between late 2021 and early 2023 under a contract to supply one LNG cargo a month, according to Sourcematerial, an investigative nonprofit, and Recommon, an Italian environmental group. During that time, Eni’s LNG ships stopped going to Pakistan and headed to Turkey instead, they said in the joint report.

Eni denies that it benefited from the situation, and all undelivered cargoes to Pakistan were beyond the reasonable control of the firm. “Only where mutually acceptable commercial solutions were not available, the contractual provisions for failed delivery were applied,” the company said in response to the report.

Two of Pakistan’s long-term suppliers, including Eni, began to cancel more deliveries from late 2021 citing their own shortages, Bloomberg reported last year. Eni failed to deliver at least four of 12 shipments in the year through February 2023, according to government data analyzed by Bloomberg.

The cancellations came as the global gas markets started to tighten in 2021, with Russia’s invasion of Ukraine in 2022 triggering a rush for LNG that left shortages for buyers that could no longer afford the fuel. Pakistan’s contracts, linked to oil rates, were at a fraction of spot LNG prices during the peak of last year’s energy crisis, and included a comparatively modest 30% penalty for cancellation, making it profitable for suppliers to legally scrap shipments.

The price surge led to record profits at LNG producers from Shell Plc to Woodside Energy Ltd. Eni was no exception, with its gas business earning €2.1 billion ($2.3 billion) before interest and taxes.

Eni said that it has “in all cases evaluated and agreed alternative commercial solutions among the affected parties, including supply of replacement cargoes, rescheduling and deferrals.” The Pakistan government said that “non-supply of LNG cargoes by Eni are a contractual matter covered under the confidentiality provisions.”

The drop in deliveries to Pakistan exacerbated widespread blackouts within the strap-cashed country, as the state-owned importer was unable to find alternative supplies. Eni was at the time also struggling with supply shortfalls following production issues at the Nigeria LNG plant that led to a reduction in shipments to the Rome-based company, according to traders with knowledge of the matter.

The Sourcematerial analysis cites estimates based on spot prices paid by Turkey at the time. The Turkish gas company, Botas, received 19 LNG cargoes from an Egyptian facility partially owned by Eni in 2022, while Pakistan only got one, the analysis found.

Sourcematerial carries out investigations related to climate change, while Recommon is an Italian activist organisation that has criticized Eni on profits made from its fossil fuels business. The groups also argued that the drop in LNG deliveries to Pakistan forced the nation to depend more on coal, increasing emissions.