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Sunday February 05, 2023

No let-up in gas crisis: LNG firms renege on commitment to provide cargoes

In March, on LNG Terminal-2, only one LNG cargo from Qatar Gas Company would be offloaded under the 10-year agreement

February 17, 2022
There is no arrangement by the Pakistan LNG Limited to arrange LNG cargo by purchasing it in the spot market. -The News/File
There is no arrangement by the Pakistan LNG Limited to arrange LNG cargo by purchasing it in the spot market. -The News/File

ISLAMABAD: The ongoing gas crisis is unlikely to subside when the mercury rises as LNG trading companies, Italy-based ENI and Singapore-based GUNVOR, have cancelled their term LNG cargoes, which were scheduled to be delivered in the first and second week of March 2022 respectively.

"This will be the fourth time when ENI will back out of delivering the term LNG cargo. However, GUNVOR will default for the second time as it earlier defaulted in November 2021. Both the LNG trading companies have emerged as habitual defaulters, which is simply unacceptable," a senior official at the Ministry of Energy told The News.

He said that both the LNG trading companies are involved in selling term cargoes of Pakistan in the spot market for monetary gains by repeatedly selling wherein LNG prices hover at $25-27 per MMBTU. "We will never allow them to make profit out of our term cargoes and to this effect a legal battle against both the two companies will start soon."

The News sent a question to both the Federal Minister for Energy and the spokesman of the Petroleum Division if ENI and GUNVOR had cancelled the LNG cargoes to be delivered in March, but both didn’t respond.

However, officials in Sui Gas companies on condition of anonymity confirmed that both the LNG cargoes have been cancelled, saying that the gas crisis will stay in March.

In March, on LNG Terminal-2 owned by PGPCL, only one LNG cargo from Qatar Gas Company would be offloaded under the 10-year agreement at the price of 10.2 percent of the Brent and two LNG cargoes, one from GUNVOR and other one from ENI, have been cancelled. And there is no arrangement by the Pakistan LNG Limited to arrange LNG cargo by purchasing it in the spot market. So the PGPCL terminal would in March remain over 80 percent underutilized.

The PLL has inked the term agreements with both the companies in 2017 to avoid purchase of LNG cargoes at higher prices, but both the companies have backed out and defaulted on the agreements for monetary gains in spot market.

Meanwhile, a high-level meeting in the Petroleum Division took place with Federal Minister for Energy Hammad Azhar to review the winter load management plan 2021-22. It decided that the CNG sector will remain closed till further orders despite the decision of ECC under which after February 15, the CNG sector will be provided sgas. But the sources said that because of non-availability of the two LNG cargoes, the gas crisis would continue to haunt the people of Pakistan even in the month of March 2022.

When contacted, official sources in the Pakistan LNG Limited (PLL) also confirmed the development about cancellation of the two LNG cargoes. They said that the PLL was making its mind to initiate a legal fight against the two LNG trading companies for perpetually breaching the agreements signed in 2017.

The term agreements with ENI and GUNVOR signed in 2017 are flawed and not in the interest of the country, an official in the Petroleum Division told The News. "In case LNG trading companies commit default, Pakistan LNG Limited (PLL) can impose a penalty of 30 percent of the term cargo price and not more than that." However, he said, the PLL is bound to pay 100 percent price of the term cargo under take or pay agreement if Pakistan, for any reason, cannot absorb the cargo in its system. In the wake of flawed agreement, both LNG trading companies do not hesitate to commit default as they are ready to pay 30 percent of the term cargo, which they sell in the market with windfall profit.

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