Manipulation by LNG distributor caused current gas crisis, another in the offing

ISLAMABAD: The Singapore-based LNG trading company, Gunvor, delivered 30 percent less LNG cargo in December than it was contracted to supply, creating acute gas shortages in the current month, a senior official at the Energy Ministry told The News. But the crisis is likely to continue in the first month of the new year also as the same company has refused to provide the term cargo on January 10-11.

The official sources confirmed that Gunvor did not deliver its full term cargo in December, rather it supplied 70 percent of LNG triggering gas crisis in the ongoing month. The winter gas demand for the domestic sector in Punjab and KPK has risen to 800-900mmcfd which in January is expected to further jack up to 1,200mmcfd as temperatures are likely to further tumble in January.

This comes at a time when the system gas production has already dwindled by 1 billion cubic feet from 4,200mmcfd to just 3,200mmcfd. The government's failure in ensuring four spot LNG cargoes (two each in December and January) and 30 percent default by Gunvor in December aggravated the situation. Furthermore, the 100 percent default by the same company on January 10-11 2022 would worsen the gas crisis next month.

Inside sources believe all this is more of a ruse for profit taking due to unprecedented volatility in international market. The companies selling the term cargoes in spot market is eyeing to reap windfall profits due to a 400 percent surge in LNG prices to $50 per MMBTU, and therefore not ready to commit to supplying on January 10-11 at the previous contracted rates.

It is against this backdrop of increased profits that the company is even ready to pay the 30 percent cost of the term cargoes, for the damage incurred instead of providing replacement cargo for another month, as sought by the Pakistan LNG Limited.

The Gunvor has come up with another device of invoking force majeure for its default and the authorities are pondering to contest the force majeure, sources said. This is not the only time both the Gunvor and ENI have violated their agreements. Earlier, they defaulted on the terms of delivering cargoes in November, 2021 and to this day negotiations are continuing for replacement cargoes without any success.

Energy Minister Hammad Azhar also confirmed the inadequate supply by Gunvor in December. He said the term agreements with ENI and Gunvor are questionable as in case of default, Pakistan can only penalize the companies upto 30 percent of the total cost of the LNG cargo instead of 60 percent of the total cargo cost.

“The term agreements with both the companies were signed in 2017 --the era of PML-N government." The minister, however, said that Gunvor has not defaulted on its term cargo scheduled for delivery on January 10-11, rather it has delayed the delivery because of some supply constraints at the supplier’s load port at USA. Azhar said the authorities are currently seeking exact delivery time from Gunvor, but it has not so far responded with the time slot. Sources believe only a penalisation of the companies to the tune of 60 percent of the total cargo cost will discipline them.

Meanwhile, SNGPL wrote two letters to Pakistan LNG Limited (PLL) on December 23, asking for spot cargoes to avert the gas crisis both in December and January. It said due to non-availability of LNG cargo from Gunvor on January 10-11, the RLNG supply to SNGPL will reduce by 158mmcfd on average during the high demand period from January 4-22. This will be in addition to the expected reduction of gas supplies if PLL does not procure spot cargoes for January 2022.

However, sources said that PLL cannot procure the spot cargoes at the highest price of $50 per MMBTU due to its acute liquidity crisis. The PLL is already facing a deficit of Rs104 billion because of non-recovery of payment of RLNG injected to domestic sector prior in the winters. The losses will jack up to Rs190 billion after the ongoing winter season. “And given the financial constraints, PLL management is not inclined to procure the spot cargos.”