Pakistan launches emergency tenders for two spot LNG shipments for March
ISLAMABAD: After futures suppliers — ENI and GUNVOR canceled their LNG cargoes slated for delivery next month, Pakistan LNG Limited (PLL) on Friday launched an emergency tender for the purchase spot of two LNG ships for March.
The withdrawal of ENI and GUNVOR has forced Pakistan LNG Limited (PLL) to buy the expensive LNG in the spot market where the price currently hovers between $23-25 per MMBTU, which is quite high. According to the relevant authorities, PLL has solicited bids from international LNG trading companies for the spot purchase of two LNG shipments to be delivered on March 2-3 and March 10-11.
Now, it will be very interesting to observe whether ENI and GUNVOR, which have defaulted on delivery, will or will not participate in tenders for spot LNG supply. However, the official said that the government, which would now use a gas pricing mechanism based on the weighted average cost of gas (WACOG), is comfortable procuring LNG on the spot market, even at low prices. higher prices. Under WACOG, imported LNG will be merged with local gas and their average price will be paid by consumers.
The News in its February 17 edition reported that Italy-based ENI and Singapore-based GUNVOR had canceled their forward LNG cargoes scheduled for delivery in the first and second week of March 2022 respectively. Orlandi Benedetta, ENI’s spokesperson, while confirming the cancellation, told The News that ENI was experiencing disruptions in the LNG supply chain due to the failure of a third-party supplier. ENI evaluates all contractual remedies, including legal actions, to preserve its rights. The Energy Ministry official said that “this is the fourth time that ENI has waived delivery of the LNG cargo term. However, GUNVOR will default for the second time, as after a previous default in November 2021.” GUNVOR sought to invoke the force majeure clause each time to avoid the penalty which is only 30% of the forward freight.
Pakistan LNG Limited (PLL) and GUNVOR signed a 5-year contract in June 2017 under which GUNVOR is bound to supply the forward cargo of 11.6247% Brent LNG. This agreement will end in July 2022. Similarly, PLL entered into a 15-year contract with ENI in December 2017 to supply LNG at 12.14% of Brent, until 2032.
Under the agreements, if LNG trading companies fail, PLL can only impose a penalty of 30% of the forward freight price. But the PLL is liable to pay 100% of the price of the cargo escrow or payment agreement if Pakistan for any reason cannot absorb the cargo into its system. As a result of this flawed deal, the two LNG trading companies never hesitate to default as they are willing to pay the small penalty while making windfall profits by selling the cargo forward in the market.