LNG crisis likely to worsen in country

The liquefied natural gas (LNG) suppliers have refused to give supplies to Pakistan for the month of February in the wake of recent massive hike in the prices of gas.

According to details, Pakistan LNG Ltd (PLL) had advertised a tender on November 28, 2020 for the procurement of two spot LNG cargoes to be delivered in February 2021.

On December 28, 2020 the bids were opened and the results were announced, and in accordance with the Public Procurement Regulatory Authority (PPRA) rules, the award intimation was made 10 days later on January 7, 2021.

The spot cargo scheduled for mid-February was awarded to SOCAR Trading UK Ltd while the second spot cargo planned for the last week of February 2021 was awarded to the lowest bidder as per PPRA rules, who conveyed its inability to deliver as per its bid.

The PLL approached the second and third lowest bidders within the bid validity period all of whom regretted to deliver the cargo at the prices they had offered in their bids.

This bid default of the suppliers is associated with the recent supply shortages leading to high price volatility in the spot market coupled with extra buying in North Asia.

There are reports about several global companies defaulting on their bids or even contracts in some cases given the supply shortages and extremely volatile prices.

It is worth mentioning that the dealers who have regretted to supply gas after bidding in the PLL tender include state-run entities and major international LNG traders.

The PLL is taking all measures available under the law and PLL's tender process including forfeiture of bid bonds, against the bidder(s) who failed to supply cargo as per their bids.

Due to low demand in the next month, Pakistan on an average had imported 7.75 cargoes in February in the last four years. Currently, a total of 8 cargoes are secured.

The Pakistan State Oil will import six cargoes and PLL two cargoes as one contract cargo by Italian firm ENI and one spot cargo of LNG by Azerbaijan firm SOCAR.

The PLL is working with the respective users to reconfirm demand at the current prices and exploring alternatives if demand for an additional cargo in February is reconfirmed.

If emergency procurement is done it will be as per the current market rate. The PLL had already advertised unused capacity in its terminal for February 2021 and private sector may bring in additional LNG.

The PLL had received an all-time high bid at 32.48% of Brent to secure cargoes for the month of February. High bids were received for two LNG cargoes for slots of February 15-16, 2021 and February 23-24 from four LNG suppliers.

SOCAR had offered bids at 23.4331% of Brent for the slot of February 15-16, 2021 and 22.1142% of Brent for the slot of February 23-24 while Trafigura had offered for two slots of February 15-16 at 32.4888% of Brent and for February 23-24 at 25.9777% of Brent.

Gunvor had quoted 25.5666% of Brent for the slot of February 15-16 and 23.5666% of Brent for February 23-24. Emirate National Oil Company (Enoc) had quoted a price at 20.8483% of Brent for February 23-24 slot. Vitol also submitted its bid for the last time slot at 24.4321% of Brent.

Pakistan was even willing to receive LNG cargoes at all-time high prices but the suppliers refused to give LNG.

The PTI government had criticised the PML-N government for signing LNG contract deal with Qatar. But this deal had rescued Pakistan when prices were all-time high in global market.

Additionally, private sector had been trying to import LNG for the last several years but bureaucracy had created hurdles in the process to maintain monopoly of state-run companies.

After failing to secure LNG contracts, government is now depending on private sector to import the gas.