Pakistan may claim damages from suppliers

Pakistan may claim damages from suppliers


ENI, Swiss Gunvor default on liquefied natural gas cargoes

Pakistan may claim damages from suppliers

LNG spot prices in Asia have risen by 16 percent as a result of Russia’s gas supply restrictions, according to Platts.


KARACHI: Fed-up with the continual liquefied natural gas (LNG) suppliers’ default under one pretext or the other, Pakistan is considering to claim damages from the Italy-based ENI and Swiss Gunvor for their failure to meet their contractual obligations, depriving the country of essential fuel supplies.

This would be in addition to the 30 per cent penalty on every default shipment since November 2021.

Muzzamil Aslam, spokesman for the Ministry of Energy, said that the penalty would be imposed on all defaults since November 2021.

A 30 per cent penalty would not make a difference as the prices in the international market were too high, he said.

“The government is considering more than just a 30 per cent penalty. We may claim damages. We need to set an example.”


“We will not let them make money by selling our term cargoes in the spot market for windfall profits and depriving Pakistan of its supplies,” Aslam said.

Pakistan has so far remained unsuccessful in finding the LNG replacement cargoes in the backdrop of cancellations of the long-term supplies.

A total of 11 cargoes will be received in March, which would be enough to meet the demand since winters were almost over in all parts of the country, Aslam said.

“Pakistan is safe, compared with the rest of the world in terms of gas supplies.”

Asif Qureshi, chief executive officer of Optimus Capital, said that the imposition of 30 per cent default penalty on LNG suppliers wouldn’t deter defaults. “These are commercial defaults, and these would continue as long as the commodity prices remain high.”

“Pakistan has these fixed contracts at around $10/mmbtu, and a 30 per cent default penalty wouldn’t make any difference for them since the commodity is being sold at $26/mmbtu to the European buyers. They will pay the penalty happily,” he added.


Spot LNG rates surged to $60/mmbtu as of Thursday. Minister of Energy Hammad Azhar tweeted that the LNG spot cargoes had touched $60/mmbtu in the international markets.

“However Pakistan’s weighted average of 9 to 10 cargoes arriving in March 2022 is priced only at $14.5/mmbtu of long-term and spot cargoes purchased. This is despite two defaults of long-term cargoes.”

For Qureshi any ease in the LNG rates was not likely any sooner, instead these could go even higher.

“The European demand is high and they are willing to pay a higher price. Therefore, the shipments would continue to go there until the commodity price comes at par with the fixed contracts.”

Talking about the LNG prices outlook, Muzammil Aslam said that it was a tricky thing to estimate and referred to overnight jumps in the coal prices from $200/tonne to $430/tonne.

“The LNG prices were $30/mmbtu last week and now they have reached $60/mmbtu. At this amount, we can only wait and see how things unfold.”


Last week, it emerged the government would penalise the ENI under the provision of a 15-year term agreement for backing out of the cargoes.

The ENI for the first time partially defaulted in January 2021 when it provided half LNG cargo and then it failed to provide cargo in August 2021. It also committed default in November 2021 and now it has committed the latest default for March.

Gunvor also defaulted in November 2021 and now in March 2022 too. However, it sought force majeure every time to avoid the penalty.

The latest default by both companies forced Pakistan to procure LNG from the spot market at a huge price of $25.12/mmbtu.

Pakistan, in response to the emergency tender issued on February 17 for two LNG cargoes, one for March 2 to 3 and the other one for March 10 to 11, got on Tuesday two bids for spot LNG cargoes for only a one-time window of March 10 to 11.

However, it got zero response from the LNG trading companies for providing a spot cargo for the window of March 2 to 3.


The shortage caused by the defaults is taking its toll on the country’s resources as Pakistan opted for the expensive diesel to generate power.

In January, Pakistan’s diesel-based power generation surged to the highest in seven years, whereas the LNG-fired output dropped to the lowest in two years.

The furnace oil (FO) sales grew 14 per cent and high-speed diesel (HSD) sales surged 10 per cent in the eight months of FY22 (July-February 2021/22), amid LNG shortage and higher electricity generation.

The LNG supply looks tight at the moment and the prices were expected to remain elevated even before the invasion of Ukraine.

The energy prices that are already on a surge after a global supply imbalance due to the slow Covid recovery have risen further after the Russian invasion and subsequent sanctions.

Understandably, higher costs post a specific burden for developing economies, as they fight off climate change. This would result in a potential rise in the power costs, as well as in the government subsidies to the sector and a slowdown in the pace of the economic recovery.


The issue also brings to light the increasing dependence on LNG, as the demand continues to surpass the supplies.

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