Pakistan's gas crisis to worsen as LNG supplier defaults

Pakistan’s gas crisis to worsen as LNG supplier defaults


Pakistan can expect its gas crisis to worsen further in the coming weeks and months as the Singapore-based LNG trading company, GUNVOR, has intimated to authorities in the government that it will not be able to deliver its term LNG cargo due on January 10, 2022 by claiming the force majeure. 

GUNVOR has also not yet informed Pakistan LNG Limited as to when this term cargo will be provided, a well placed senior official at the Energy Ministry told.

He said that technically it will be the second default by GUNVOR in a row in the current winter season 2021-22, as it earlier defaulted from the provision of the term cargo on November 19-20, 2021. 

The Italian company ENI also defaulted on November 26-27, 2021 from the delivery of its term cargo. ENI had earlier backed out of its term LNG cargo in August, 2021. 

“And this is how both the LNG trading companies have defaulted twice. The intimation of non-availability of LNG cargo from GUNVOR comes at a time when LNG price in the spot market is hovering at $35-40 per MMBTU.”

The non-availability of the term cargo on January 10 will further worsen the ongoing gas crisis in the country. From December 15, the government has already cut gas supply to the export sector in Punjab apart from shutting down the non-export industry and CNG sector. Domestic consumers are also facing massive shortages across the country even at breakfast, lunch and dinner times and people are forced to purchase food, roti, nan and even tea from hotels at higher prices.

However, the managing director of the Pakistan LNG Limited (PLL) didn’t respond to the question when asked if GUNVOR has again defaulted from the LNG cargo which is due to be delivered on January 10, 2022.

According to a senior official of the Ministry of Energy, natural gas demand in Punjab and KPK’s domestic sector has risen to 800-900 mmcfd, and it is expected that the natural gas demand in the domestic sector will further rise to 1200 mmcfd in January, as mercury is expected to fall further in January.

System gas production has been reduced from 4200 mmcfd by 1 billion cubic feet to 3200 mmcfd. As the authorities failed to secure four spot LNG vessels (two in December and two in January) and GUNVOR defaulted on January 10, the natural gas crisis worsened.

The official said that considering the given situation, there is not enough available gas in the system to accommodate the textile industry in Punjab, even at $9 per MMBTU.

“Yes, we can accommodate the textile industry at $9 per MMBTU only after reducing the LNG supply to the power sector and cutting the gas to the fertilizer sector.”

In low winter, the earlier fertilizer sector was never given gas, it was only provided with the gas in the peak winter season.

The official said that it is high time for the government to utilise the furnace oil which is available in abundance in the country for power generation and divert the gas to the export industry at $9 per MMBTU.

“We started the winter season this time with a shortfall of 360 mmcfd in Punjab and KPK.”

To a question, he said that the ENI and GUNVOR which earlier defaulted in the month of November has not yet given an undertaking to provide the term cargoes as a replacement in other months as they are more keen to be penalized. The penalty is equally the 30% of the value of the term cargo.

Under the term agreements with Pakistan LNG Limited, Italy-based ENI is bound to provide LNG cargo every month at 11.95% of the Brent and GUNVOR is also in a 5-year term agreement and bound to provide a cargo at 11.6247% of the Brent. 

According to the contract, in the event of default, PLL can impose a fine of 30% of the cargo contract price on each LNG company. Because of the huge profits in the spot market, both parties are prepared to pay the fine. Encourage them to sell Pakistani regular goods to the international market.

PLL has signed term agreements with the two companies to avoid purchasing LNG cargoes at higher prices, but both companies have withdrawn and defaulted twice.

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