The Singapore-based commodity trading company Gunvor sent out refusal notices to Pakistan ahead of the expected delivery of LNG cargoes to the country.
According to the letter, four LNG cargoes previously scheduled to reach Pakistan between April and June would not enter the Pakistani market, forcing the government to purchase LNG on the spot market, which hit its record high over concerns of lack of supply amid the Russia Ukraine war.
Following the decision of commodity trader Gunvor, Pakistan, which was already struggling to get grips with the rising inflation and energy demands, would take a significant hit in both sectors.
The Energy Ministry received the letter on the 26 of March, and it stated that the commodity trading company would not be able to ship four LNG cargoes that, as per contracts, were scheduled for delivery on April 15, May 14, June 4, and June 9.
Singapore-based LNG trading company withdraws from the commitment to deliver four LNG cargoes
The Singapore-based company GUNVOR was supposed to deliver the LNG cargoes in the remaining months. 1 in each April, May and two in June, of its five-year contract ending in July 2022.
— Economy of Pakistan (@Pakistanomy) March 29, 2022
The deliveries were a part of a five-year contract between the commodity trading company Gunvor and Pakistan LNG Ltd., the country’s second-largest state-owned petroleum company. Both parties had agreed upon a five-year contract at an 11.6 percent Brent slope, and the contract was due to end in June this year.
Previously, Gunvor has defaulted three times and reneged on deliveries for November 2021, January 2022, and March 2022.
In response to the recent backtracking from the trader, Pakistan issued two tenders for spot LNG for the deliveries for the months of April and May. The lowest bidder for April was Vitol Bahrain which agreed to deliver LNG cargo for $34.6/MMBtu, and for May, the lowest bidder was PetroChina which agreed to deliver it at $33.5/MMBtu, the tender documents revealed.
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A statement from Gunvor regarding the cancellation of four LNG cargo supplies for the following months is still pending. Meanwhile, Gunvor has sought a force majeure to avoid a penalty that the Pakistani government immediately challenged to get financial reimbursements to cope with the challenges arising as a result of the LNG supply disruptions.
Pakistan has been facing a lot of challenges with regard to its LNG contracts, specifically with Eni and Gunvor. Pakistan signed a 15 year contract with Italian trader Eni in 2017, and with the beginning of the fifth year of the contract, Pakistan receives the LNG cargoes at 12.14 percent of Brent. The contract with Eni is due to expire in 2032. Both Eni and Gunvor also backtracked on their delivery for March, citing supply chain disruptions for their failure to deliver upon the stated agreement, and forcing Pakistan to call for a last-minute bid.
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In addition to gas shortage, electricity production has also taken a hit, and according to government data, the electricity production from RLNG shrank by 8 percent in the seven months before January. If Pakistan fails to procure LNG from the lowest bidders for the following months, the country would have to face a massive gas and electricity crisis in the summer.