Govt fails to buy subsidised LNG

ISLAMABAD: The federal government is in for another major blow in February, as the Dubai-based Emirates National Oil Company (ENOC) has backed out of its commitment to provide LNG cargo to Pakistan. In a latest communication, the ENOC that had won an LNG cargo for delivery on February 23-24 with the lowest bid at 23.4331 percent of Brent (equal to $11.70 per MMBTU), has conveyed the Pakistan LNG Limited (PLL) that it won’t be able to provide the cargo.

The ENOC’s failure to honour its commitment has put the Petroleum Division’s top bosses in a state of shock, as the denial will exacerbate gas crisis in the country.

According to sources privy to the shocking development, the cost of LNG in dollar terms per MMBTU in the open market has soared by over 100 percent and the government apprehends that the ENOC has sold out the LNG cargo meant for Pakistan to another country or party at an expensive rate.

However, the ENOC will have to lose its bid bond of $300,000, said the sources.

Industrial sources also confirmed the development saying the LNG process had jacked up in the open market manifold.

“The S&P Global Platts JKM for February was assessed at a record high of $32.494/MMBTU on January 12. This is the highest for the LNG benchmark for Asian spot LNG since it was launched in early 2009.

The current Brent crude price in MMBTU is around $9.7/MMBTU at a conversion rate of 5.8 MMBtu per barrel,” they said.

The Petroleum Division confirmed the development that the ENOC had backed out of its lowest bid. However, the Division insisted that it would not cause more surge in the gas crisis, as around eight cargoes had already been arranged for February.

Official sources said the PPRA rules were also responsible for this ugly situation to some extent, as after opening of bids on December28, the authorities after evaluating bids remained silent for 10 days and then asked the LNG suppliers to either provide the LNG vessel or not.

More importantly, under the PPRA rules, the PLL is bound to make the bid prices public whereas other countries don’t have such mechanism and they deem that keeping the prices secret is their strategic decision.

They said Pakistan got the bids in the range of $10.7 to $11.70 per MMBTU for two LNG cargoes for the month of February, but the prices went up more than 100 percent during the time from December 28, 2020 until now.

He apprehended that after the bid opening, the other players might have approached the ENOC and offered double price and that’s is why it preferred to absorb the loss of bid bond amounting to $300,000.

“This means, the ENOC has gone for big profit out of LNG cargo which is why it did not care about losing the amount of bid bond.”

“Every LNG trading company has to deposit the bid bond of $300,000 which can be captured if any LNG supplier after winning the contract does not provide the LNG vessel.”

The authorities are also confused, sources said, about whether another LNG trading company SOCAR from Azerbaijan, which had won the LNG cargo for delivery on February 15-16, was still committed with its bid or not.

Sources also feared that SOCAR might also back out as arranging the LNG from the open market had become tough as the cost of LNG per MMBTU in terms of US dollars had increased manifold. However, the Petroleum Division insists that SOCAR from Azerbaijan will not back out of its lowest bid.

The authorities said SOCAR will not deviate from its bid which it won for LNG cargo to be delivered on February 15-16.

Sources also mentioned that LNG supplier Vitol had also defaulted in December by providing half of cargo instead of a full vessel to Pakistan.