Thursday April 18, 2024

Gas crisis deepens as ENI defaults once again

Under the agreement, Pakistan can penalize both ENI and Gunvor to the extent of 30 percent of the term cargo's cost

By Khalid Mustafa
April 21, 2022
Photo: The News/File
Photo: The News/File

ISLAMABAD: At a time when the government has moved the London Court of International Arbitration (LCIA) against two LNG trading companies—ENI and Gunvor for defaults on provision of 10 term LNG cargoes, ENI once again defaulted on LNG cargo scheduled for May 1. This latest default is likely to cause an increase in the ongoing gas deficit, well-placed top officials privy to the development told The News.

Both the companies have become chronic defaulters, throwing the country into gas crises by violating their supply agreements over 11 times in a space of two years. “Singapore based Gunvor defaulted seven times and Italy-based ENI four and a half times.”

“This latest backing out by the ENI has left the Energy Ministry in the lurch as how to cope with the ongoing gas crisis in summer, which is likely to aggravate." The ENI has similarly defaulted on supplying four LNG cargoes in the last two years. "It first defaulted in January 2021 by providing half LNG cargo instead a full one. Later, it backed out from providing cargoes in August, November, March and May 2022."

According to sources, both ENI and Gunvor have emerged as habitual and willful defaulters to earn windfall profits by diverting term cargoes meant for Pakistan to international markets when LNG prices increased over 25 to 32 dollars per MMBTU. But both would revert to supplying LNG when the global LNG prices would plunge.

Under the agreement, Pakistan can penalize both of them to the extent of 30 percent of the term cargo's cost, which both companies are ready to pay, but sick of the errant behaviour Pakistan wants replacement cargoes which they are refusing to provide forcing Pakistan to move the London Court of International Arbitration against them.

Interestingly, the Petroleum Division spokesman and PLL management didn’t respond to The News when asked through WhatsApp if the ENI had committed the latest default. However, when contacted, ENI spokesperson confirmed the cancellation saying ENI suffered a disruption in the LNG supply chain by a third-party supplier. "ENI is evaluating all contractual remedies, including legal actions, to preserve its rights," she said. A senior official said the country was already importing just 800mmcfd against thedemand of 1,200mmcfd. But with the latest default by ENI, the volume would reduce by 100mmcfd to 700mmcfd. Already, the RLNG supply to the CNG sector has been reduced to zero, and slashed by 50 percent to captive power plants of export and local industry, which has reduced exports manifold.

Though the Pakistan LNG Limited (PLL) has already issued tenders seeking bids from international trading companies for six spot LNG cargoes for May and June, the spot LNG market is hovering at $30-32 per MMBTU. But the PLL is facing a liquidity crisis and has not enough money to purchase them.

The Sui gas companies are also perturbed over the scenario as they fear it will force them to further cut supplies to some sectors for diversion to the power sector. Right now power sector is being provided 500mmcfd against its demand of 690mmcfd but after cutting down supply to CNG sector and captive power plants, the power sector demand in May will escalate to 800mmcfd. With the latest ENI default, the imported gas flow will reduce to 700mmcfd. The gas companies will not be able to meet power sector demand of 800mmcfd. In turn, the government will be compelled to further reduce the gas supply to captive power plants to ensure the existing supply of 500mmcfd.

The industrial sources, also lashed out at Pakistan LNG Limited for its utter failure in making both Gunvor and ENI implement the term agreements signed in 2017. They said that PLL is not allocating its underutilized capacity to import LNG. Likewise, it is also not allowing LNG terminal-2's operator to import more than 150mmcfd gas.