ISLAMABAD: Energy Minister Hammad Azhar Monday said that the government was taking all possible measures to avert the looming gas crisis in the country.
The minister maintained that talks were underway with the companies about the matter. Responding to a question, Azhar said that the country will have 9 LNG cargoes if the companies excused themselves from providing the cargoes.
Talking about the looming LNG crisis, the minister said that the entire world was facing the shortage but the government is making all the efforts to overcome the crisis.
Two LNG companies back out of an agreement made with Pakistan
In a major setback for the country, two LNG trading companies have backed out of an agreement made with Pakistan LNG Limited (PLL) to provide two cargoes for November for mammoth monetary gains of up to 200% profit in the international spot market.
The two LNG trading companies had made an agreement with PLL, with Italy-based ENI promising to deliver the LNG cargo on November 26-27 and Singapore-based GUNVOR promising delivery on November 19-20, The News reported.
The move by these LNG trading companies has left top authorities in the energy ministry in the lurch, with some saying that the situation may expose the PTI government to a severe political backlash from the masses in November.
PLL has inked the term agreements with both companies to avoid purchase of LNG cargoes at higher prices, but both companies have backed out and defaulted on the agreements at a time when the spot LNG prices are hovering at $30-35 per MMBTU, the publication reported.
What exactly is the agreement?
ENI is in a 15-year term agreement with PLL under which it is bound to provide an LNG cargo every month at 11.95% of the Brent and GUNVOR is also in a five-year term agreement and bound to provide a cargo at 11.6247% of the Brent.
Under the contract, in case of default, PLL can impose a penalty of 30% of the contractual price of one cargo to each LNG company and both companies are ready to pay the penalty as profit in the spot market is huge, prompting them to sell Pakistan’s term cargo to the international market.
Why did the LNG trading companies back out
ENI informed PLL on October 30 that it won’t deliver the term cargo on November 26-27. Interestingly, ENI has committed default three times, including the latest one.
It first defaulted in January 2021 by providing half of the term cargo and then it did not provide a full-term cargo in August and now it has backed out of its term cargo due in November.
The LNG trading company has reportedly told PLL that its supplier has cancelled the cargo in the wake of commercial considerations and logistic issues, so it is not possible for it to deliver the term cargo in November.
ENI has become a “habitual defaulter for monetary gains” by repeatedly selling the term cargoes of Pakistan in the spot market wherein LNG prices have jacked up to 200%, sources said.
GUNVOR, meanwhile, defaulted for the first time. It said that there was a system breakdown at the loading port, which is why it may not deliver the term LNG cargo on November 19-20.
