Pakistan issues emergency tenders for two spot LNG cargoes for March

ISLAMABAD: After the term-suppliers---ENI and GUNVOR cancelled their LNG cargoes scheduled for delivery next month, Pakistan LNG Limited (PLL) on Friday issued an emergency tender seeking spot procurement of two LNG vessels for March.

The backing out of ENI and GUNVOR has forced Pakistan LNG Limited (PLL) to purchase the costly LNG from the spot market where the price is currently hovering at $23-25 per MMBTU which is quite high. According to the relevant authorities, PLL has sought bids from the international LNG trading companies for spot procurement of two LNG cargoes for delivery on March 2-3 and March 10-11.

Now it will be highly interesting to observe if ENI and GUNVOR, which defaulted from delivery, will participate in the bids for spot LNG procurement or not. However, the official said that the government, which would now use a gas pricing mechanism based on Weighted Average Cost of Gas (WACOG), is at ease for procuring LNG from the spot market even at higher prices. Under WACOG, the imported LNG will be merged with the local gas and their average price will be paid by the consumers.

The News in its edition of February 17 reported that Italy-based ENI and Singapore-based GUNVOR, had cancelled their term LNG cargoes scheduled for delivery in the first and second week of March 2022 respectively. Orlandi Benedetta, spokesman of ENI while confirming the cancellation told The News that ENI is suffering disruptions in the LNG supply chain due to default by a third-party supplier. The ENI is evaluating all contractual remedies, including legal actions, to preserve its rights. The Ministry of Energy official said "this is the fourth time when ENI has backed out of delivering the term LNG cargo. However, GUNVOR will default for the second time as after earlier default in November 2021.” GUNVOR sought to invoke the force majeure clause at both times to avoid the penalty which is just 30 per cent of term cargo.

Pakistan LNG Limited (PLL) and GUNVOR inked a 5-year contract in June 2017 under which GUNVOR is bound to provide the LNG term cargo at 11.6247 per cent of the Brent. This accord will end in July 2022. Similarly, PLL entered a 15-year contract with ENI in December 2017 to provide LNG cargo at 12.14 per cent of the Brent, till 2032.

Under the agreements, if LNG trading companies commit default, PLL can only impose a penalty of 30 per cent of the term cargo price. But the PLL is bound to pay 100 per cent price of the term cargo undertake or pay agreement if Pakistan, for any reason, cannot absorb the cargo in its system. In the wake of the flawed agreement, both the LNG trading companies never hesitate to default as they are ready to pay the low penalty while making windfall profits by selling the term cargo in the market.