Mismanagement mars LNG imports

Expensive deals going to put extra burden on consumers, national exchequer

ISLAMABAD:

The liquefied natural gas (LNG) business has been marred by mismanagement, which has led to consumers being fleeced out of millions of rupees.

There has been lack of planning for LNG import by state companies, hence, the country has already consumed cheaper LNG and upcoming expensive deals are going to put an additional burden on consumers and the national exchequer.

Interestingly, only one trading company has provided five LNG cargoes from October to November 2020 and no other company seems to be making supplies.

Pakistan LNG Limited (PLL) had already consumed one LNG cargo in December 2018 that was scheduled to be delivered in December 2020.

PLL has a short-term LNG supply contract with Gunvor for five years. It has to supply one LNG cargo every month. However, PLL rescheduled one cargo in November 2020 that was scheduled for December.

In November, spot prices stood at 13-14% of Brent crude. However, PLL received bids of over 16% for spot cargoes in December. So, it rescheduled the LNG cargo for the period when prices were low. Now, it has no cheaper LNG cargoes scheduled for December.

PLL has a contract agreement for supply of 200 million cubic feet of LNG per day (mmcfd) with Gunvor and Eni at 11.62% and 11.98% of Brent crude respectively. These two parties are to ship two LNG cargoes every month.

Moreover, PLL, Pakistan LNG Terminals Limited (PLTL) and Sui Northern Gas Pipelines Limited (SNGPL) have no exposure to LNG business. Owing to which, consumers have suffered a lot over the last several years.

The capacity of LNG terminals has been idle and consumers have paid billions of rupees. State companies created hurdles in the way of allowing private sector to do the business at cheaper rates.

Now, PLL has floated a tender for six LNG cargoes on a spot basis at over 16% of Brent crude prices. However, PSO imports LNG at 13.37%, which has been criticised for being a higher price.

Spot cargoes are normally bought at lower prices. But here is a different case. A few traders, who always secure contracts in all tenders, have submitted bids with a minor difference, quoting over 16% of Brent crude. This is normal practice when traders join hands to win contracts.

The Oil and Gas Regulatory Authority (Ogra) will notify prices of LNG based on the spot cargoes. So, the consumers will be facing an additional burden due to higher prices. At present, the government has a plan to allow two fertiliser plants to continue to operate with gas supply at discounted rates. It is also providing gas at discounted rates to major export-oriented sectors. So, this will put an extra burden on the national exchequer.

The government has also planned to divert LNG again to domestic consumers. Gas companies are already facing a burden of Rs78 billion due to diversion of LNG to domestic consumers in the last two winter seasons. Gas companies are expected to face an additional debt of Rs69 billion due to diversion of LNG to domestic consumers during the current winter season.

So, the gas sector is also going to bleed this winter. Though the government may overcome the gas crisis, the mismanagement in LNG imports, which are benefitting the traders, will lead to another debt crisis in coming months.

The government has already allowed the private sector to import LNG. State-run PLL is in the process of allocating the idle capacity of second LNG terminal to the private sector.

After that, the private sector will import LNG for the first time in Pakistan. The private sector has been struggling since long to import LNG.

Officials say the private sector will not only be able to bring gas at cheaper rates but there will be no financial risk to the government.

PLL spokesperson told The Express Tribune that one LNG cargo of Gunvor had been received in December 2018 to overcome gas shortage. He said that PLL had a contract clause to reschedule LNG cargo.

Prices of gas in the international market were high, therefore, they received higher bids, he said and ruled out any favour being given to the LNG trader. “A consultant evaluates bids of LNG traders,” he stressed.

Published in The Express Tribune, November 11^th, 2020.

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