Saturday September 30, 2023

PLL fails to attract LNG bids for six-year term contracts

October 04, 2022

ISLAMABAD: In a huge dent to future LNG supply, Pakistan LNG Limited (PLL) here on Monday received no response from the LNG suppliers against the revised two-part tender seeking 72 cargoes under 6-year term agreements as LNG is no more available even for term contracts in the international market.

The evaluation report of the results of the two-part tender seeking term contracts uploaded on Monday (October 03, 2022) on PLL’s official website, mentions that no LNG supplier turned up for participating in the bidding process. Under the two-part tender, PLL had sought under part 1, bids for two years from January 2023 to December 2024 seeking 24 LNG cargos but no LNG supplier came up with any bid. The same happened with part 2 of the tender for which PLL sought bids from January 2025 to December 2028 for 48 LNG cargos.

“This is a huge setback for the government as the Pakistan LNG Limited has already failed to procure spot cargos for a long time and the people this time will have to face a massive gas deficit close to over 1-1.5 bcfd,” a senior official close to Secretary petroleum told The News.

The official said that Prime Minister Shehbaz Sharif is known as a doer, but the top functionaries of the Petroleum Division and PLL under his command, as PM also holds a portfolio of federal minister for Petroleum, have failed to import more LNG and resultantly the government will have to rely on the 8 term-cargoes (6 under 13.37 per cent of Brent price and 2 under 10.2 per cent of Brent) and one cargo from ENI at 12.14% of the Brent price. The ENI usually backs out from supplying one cargo in alternate months. “This means that against the capacity to import 12 cargos a month, the government will have to import 8-9 cargoes for winters.” This means Pakistan this time would be importing 800-900 mmcfd gas every month during the winter season against the capacity to import 1,250 mmcfd causing a shortage of 300-450 mmcfd gas.

As far as the local gas is concerned, the gas demand of Sui Southern in Sindh and Balochistan will be hovering at 1200-1300 mmcfd in the winter season, but only 900 mmcfd of gas (850 mmcfd of system gas and 75 mmcf LNG). This means that the gas deficit in Sui Southern system would be around 300-400 mmcfd. However, for Punjab and KPK, the gas deficit in Sui Northern system would rise to 750 mmcfd in January, starting with a shortage of 250 mmcfd in November that will scale up to 600-700 mmcfd in December. The system gas for Punjab and KP will be available to the tune of 790 mmcfd and LNG of 800 mmcfd. From the Mari gas fields, the government is trying to get more gas, ie from 30mmcfd to 110 mmcf to address the shortage.

Apart from the acquisition of term and spot contracts, the government also failed not only to use the under-utilized capacity of 300-400 mmcfd of LNG Terminal-2 but has also not succeeded to use the additional capacity of the same LNG terminal under TPA rules. Had the private sector been allowed to use the excess and under-utilized capacity, the country would have more 400-500 mmcfd LNG in its system and there would have been no gas crisis in the coming winter season “Right now at LNG terminal-2, PLL is unable to fully utilize its own purchase capacity of 600 mmcfd as it has failed to procure 3-4 spot cargos a month. However, it is utilizing 200-300 mmcfd capacity.

A senior official, when asked for reasons behind PLL’s failure to invite LNG suppliers for term bids, said firstly LNG is not available in the international market in the backdrop of the Ukraine crisis and all the LNG producing countries are overcommitted to European countries, China, and Japan. And since they all are rich countries and are able to pay the maximum price of LNG, Pakistan has not received a bid for term contracts.

The second reason, the officials said, is that the country’s LNG sector has become unsustainable. Pakistan State Oil (PSO) is facing a circular debt of Rs327 billion in the LNG sector alone in the wake of the inability of Sui Northern to pay the dues of Rs327 billion. “PSO is feeling the heat as it is finding it difficult to open and retire LCs on time for smooth imports of LNG. More adverse is the case of Pakistan LNG Limited which is also a victim of circular debt of close to Rs100 billion and is unable to open LC for the import of costly LNG cargoes. And on top of that, the current management of PLL has failed to create its clout in the international market despite so many foreign visits by MD Masood Nabi for attending LNG seminars and workshops.

On top of this, the official explained the five-year term contract with GUNVOR expired in July 2022 but the PLL management did not initiate any term agreement with any LNG supplier before the contract with GUNVOR expired. “This is criminal negligence on part of PLL and it should be probed as to why it did not contract more LNG terms agreements before the agreement with GUNVOR expired.”