Failure to buy LNG from spot market: Gas crisis set to simmer in summer

ISLAMABAD: Pakistan is facing a gas crisis in summer after Pakistan LNG Limited (PLL) failed to procure LNG from the spot market at a reasonable price for April, May and June 2022 with severe liquidity issues linked to the circular debt.

Only eight LNG cargoes will be imported for April against the demand of 12 cargoes. Pakistan State Oil (PSO) will import seven cargoes under long term agreement with Qatar and PLL forged in 2014 by the PML-N government. Only one cargo, which is a term cargo, will be provided by ENI; however, PLL remains unclear whether it will be able to manage the term cargo from ENI, an official of PLL told Business Recorder.

LNG trading company, Gunvor, has already backed out of delivery of four LNG cargoes that were to be delivered in April, May and two in June with its five-year contract is expiring in July 2022. An official of Petroleum Division said that Gunvor was in default of sale and has declared force majeure. “The trader is ready to pay 30 percent penalty on default while price hike in international market is around 300 percent,” he said.

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Pakistan LNG Limited has also decided not to procure spot LNG cargo for April at the price of $34.677 per MMBTU offered by Vitol Bahrain and no fresh tender for spot LNG purchase has so far been invited in the international market, sources said.

Gunvor was bound to provide the LNG term cargoes at 11.6247 per cent of Brent; it had earlier backed out thrice from delivering cargoes - on November 19, 2021, January 10, 2022, and then again in March 11, 2022.

Both gas companies, Sui Northern Pipeline Limited (SNPL) and Sui Southern Gas Company (SSGC), have conveyed to Petroleum Division that they can only provide 500mmcfd, keeping in view the imported gas availability crisis for power sector for electricity generation for April and May; whereas the Power Division had submitted its demand of 680mmcfd for the month of April and 800mmcfd for May.

The receivables of PLL and PSO are historically high in LNG business with receivables of PLL having reached Rs 147 billion and SNGPL Rs268 billion.

Copyright Business Recorder, 2022