Pakistan to penalise defaulting LNG supplier

ISLAMABAD: Pakistan LNG Limited (PLL), which will now purchase one spot LNG cargo at a higher price of $25.12 per MMBTU to be delivered on March 10-11, has made up its mind to impose a monetary penalty on Italy based LNG term supplier ENI, which is the 30 percent of the term cargo.

The PLL will impose the penalty on ENI under the provision of a 15-year term agreement for backing out of the cargoes, a senior official at the Energy Ministry told The News.

The ENI spokesperson says ENI will honour the contract when she was asked for a version over the government inclination to penalize it for committing defaults in breach of agreement.

"ENI for the first time partially defaulted in January 2021 when it provided half LNG cargo and then it failed to provide cargo in August 2021. It also committed default in November 2021 and now it has committed the latest default in next month of March. Another LNG supplier GUNVOR also defaulted in November 2021 and now in March 2022 too," the official said. "However, GUNVOR sought force majeure for every time to avoid the penalty.”

He said that the government is making up its mind to challenge the force majeure sought by GUNVOR and penalize the ENI for its defaults.

"We will not let them make money by selling our term cargoes in the spot market for windfall profits and depriving Pakistan of its term cargoes," he said adding that "enough is enough". The penalty amount, he said, to be obtained will be made part of the amount to be used in purchasing the spot cargoes in future, a senior official privy to the new development told The News.

The latest default by both companies forced Pakistan to procure LNG from the spot market at a huge price of $25.12 per MMBTU.

Pakistan, in response to the emergency tender issued on February 17 for two LNG cargoes, one for March 2-3 and another one on March 10-11, got on Tuesday two bids for spot LNG cargoes for only one-time window of March 10-11. However, it got zero response from the LNG trading companies for providing a spot cargo for the window of March 2-3.

The Qatar Petroleum Trading submitted the lowest bid at $25.12 per MMBTU for spot LNG cargo for March 10-11 while ENOC (Emirates National Oil Company), Singapore, submitted its bid at $26.1625 per MMBTU for the same time slot.

"So the PLL board has decided to purchase the costly spot LNG at $25.12 per MMBTU, which will result in increasing the cost of the average LNG price by around $3.5 per MMBTU in the country to $16.87 per MMBTU from $13.37 per MMBTU."

This means that in March, PLL will offload just two LNG cargoes at PGPL LNG Terminal instead of three as it has failed to procure one cargo for the time slot of March 2-3. So the PLL will get two LNG cargoes, one from Qatar Gas under new GtG 10-year agreement at the rate of 10.2 percent of the Brent and other spot cargo at the cost of $25.12 per MMBTU.

This means the PGPCL terminal will remain underutilized by 60 per cent in March. On an average, the PGPL terminal, the official said, remains underutilized by 50 percent as PLL has so far failed to utilize its guaranteed capacity of 600mmcfd at the PGPL terminal. Against 600mmcfd, in the month of March, only 200mmcfd LNG will be regasified in PGPL terminal.