LNG contracts.

THE LNG spot prices have spiked to a multi-year high in recent weeks over the fuel's rising demand in Asia as winter temperatures in Japan, China and Korea drop to below average levels. The surge in demand for the super-chilled fuel has also led to shortages of LNG cargo vessels, interrupting the supply chain and pushing freight rates to new highs.

The unprecedented price volatility in the global LNG market is leading many traders to bail on their earlier supply contracts, and forcing countries to start rationing gas owing to supply gaps. In Pakistan's case, the two LNG suppliers, who had won contracts to provide one cargo each in February, have 'regretted' their inability to fulfil their commitment (owing to the massive gap between current spot rates and the price agreed under the deals), forfeiting their bid bonds.

'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 is news in the market about numerous global companies defaulting on their bids, or even contracts in some cases, given the supply shortages and extreme price volatility,' the state-owned Pakistan LNG Ltd, which had ordered the import of gas, explained.

The rapid spot price variations in the global LNG market and consequent defaults by suppliers are a wake-up call for the PTI government, which has never been short of invectives to heap on its predecessor for striking a long-term deal with Qatar to procure the fuel. Why are long-term deals important for...

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