Pakistan has received refusal notices from commodity trader Gunvor to supply four LNG cargoes expected in the next three months, forcing the South Asian country to purchase LNG on the spot market at record-high prices and grapple with energy security concerns, officials at its energy ministry told S&P Global Commodity Insights.
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Pakistan's Ministry of Energy received March 26 refusal notices from Gunvor stating that the trader would not be able to ship four LNG cargoes scheduled for delivery on April 15, May 14, June 4 and June 9 as per contracts, officials in Islamabad said.
Gunvor declined to comment.
Pakistan LNG Ltd., the country's second-largest state-owned petroleum company that imports LNG on behalf of the government, has a five-year contract with Gunvor at 11.6247% Brent slope that ends in July this year, the officials said.
Gunvor has already defaulted on three occasions and backed out from supplying LNG cargoes for the scheduled delivery dates of Nov. 19, 2021, Jan. 10 and March 11, S&P Global reported earlier citing officials.
To mitigate the deficit, Pakistan LNG issued two tenders for spot LNG supply where the lowest bidders were Vitol Bahrain at a price of $34.6777/MMBtu for the April 21-22 window, and PetroChina at a price of $33.5300/MMBtu for May 14-15 delivery, tender documents showed.
These are some of the highest prices paid by Pakistan for LNG imports and results in downstream prices that make natural gas unaffordable in many sectors.
Other bidders for the April 21-22 window were ENOC Singapore offering $37/MMBtu, TotalEnergies at $36.77/MMBtu and PetroChina at $34.99/MMBtu, the document showed. For May 14-15 other bidders were TotalEnergies at $37.77/ MMBtu and PetroChina at $33.53/MMBtu.
However, there is a likelihood that the government might not accept even the lowest bids because after adding port handling charges and other costs the imported value of LNG on the day of the arrival might be as much as around $41/MMBtu, according to industry sources.
"There is a possibility that two more tenders will be called for the June and July delivery period," an energy ministry official said.
Besides Pakistan LNG, state-owned national oil company Pakistan State Oil is expected to import seven LNG cargoes in April and eight cargoes in May under its long-term contracts with Qatar. The two long-term agreements with Qatar -- for 15 and 10 years, respectively at Brent slopes of 13.37% and 10.2% each -- end in 2031 and 2032.
Pakistan's LNG imports for the eight months of the fiscal year ended Feb. 28 amounted to $3.078 billion, nearly double $1.499 billion over the same period in the previous fiscal year, data from Pakistan Bureau of Statistics showed.
Pakistan LNG also has a 15-year LNG contract with Italian gas company Eni under which LNG was priced at a Brent slope of 11.624% in the first two years, after which the Brent slope rose to 11.95% for the next two years. From the fifth year onwards, LNG was priced at 12.14% of Brent with the contract expiring in November 2032.
Pakistan has been facing supply issues under its agreements with both Eni and Gunvor.
Pakistan LNG had received refusal notices for March cargoes from both Eni and Gunvor, forcing it to issue emergency tenders Feb. 17 for delivery in March 2-3 and March 10-11, officials said. There were no bids for the March 2-3 window, and two bids for March 10-11 from Qatar Petroleum at $25.12/MMBtu and ENOC at $26.125/MMBtu, out of which Qatar's bid was awarded, according to bid documents.
The March cargo was Eni's fourth cancellation. It previously defaulted in January 2021, August 2021 and November 2021, the energy ministry official said, adding that Gunvor has always sought force majeure to avoid paying the penalty for non delivery.
Eni did not immediately respond to queries about the March cancellation. It previously attributed the 2021 cancellations to "a disruption in the LNG supply chain originated by a third-party supplier."
The cancellations have raised concerns about energy security and the Pakistan government intends to impose a penalty of 30% of the price of the term cargo, as well as challenge the force majeure declaration, the official said.
The government has had to take measures to absorb the impact of gas shortages, such as providing subsidies to textile and related industries of Pakistan Rupee 40 billion ($12.2 million) to be paid during January to March.
The share of electricity produced from regasified LNG (RLNG) has also fallen sharply due to high prices with January 2022 electricity production from RLNG falling as much as 32%. In the seven months ended Jan. 31, electricity production from RLNG power plants shrank by 8%, government data showed.
This version corrects Gunvor's name in the text of the story.