LNG tender default turns into boon for Pakistan.

ISLAMABAD -- The liquefied natural gas (LNG) supply defaults last week by two foreign state-owned companies - Enoc and SOCAR - came as a blessing in disguise to Pakistan as two urgent replacement tenders for February fetched about 16-18 per cent cheaper rates as international market plunged.

The urgent tender floated by state-run Pakistan LNG Limited (PLL) for second half of next month attracted the lowest bid of $9.58 per million British thermal unit (MMBTU) or 19.5pc of Brent for Feb 21-22 window from Vitol Trading and $8 per MMBTU or 16.3pc of Brent from Qatar LNG for Feb 25-26 window.

In comparison, the lowest bids from defaulting parties for almost same period were $11.48 per MMBTU or 23.41pc of Brent for Feb 15-16 by SOCAR of Azerbaijan and $10.22 per MMBTU or 20.09pc of Brent by Enoc of UAE for Feb 23-24.

Informed sources in the PLL said that SOCAR not only defaulted on its February bid but also tried to blackmail the PLL into committing about 11 cargos between February and September at higher than market rates under government-to-government (G2G) arrangement without bidding. Documents seen by Dawn show the PLL and SOCAR remained engaged in talks until the last moment but the requirement for cabinet approval for G2G deal ended the process.

Replacement orders fetch cheaper rates

Fortunately, the prices had already gone down in the market by the time the PLL floated urgent tenders.

Two major factors contributed to the LNG market crash. This included an intervention by Japan's energy regulator to exit the spot market in an attempt to ensure that power prices do not go up further amid warmer weather conditions. Likewise, South Koreans also decided against securing additional gas for February.

As a consequence, LNG traders hoarding the product had nowhere to offload their cargoes, thus a fall in spot market. At present, European and Far Eastern importers are paying about $7.5 and $8.2 per MMBTU, respectively. Market analysts now expect the LNG prices going further down to about $5-6 per MMBTU or 10-12pc of Brent in April onwards period until October next year.

The petroleum division that seldom announces PLL bid results immediately claimed credit for the lower prices. In a statement, it said the PLL 'has arranged one more LNG cargo at a lower price for the month of February 2021 through an urgent tender. The price is approximately 22pc lower than the price of the bidder that withdrew its bid earlier for same cargo'.

The petroleum division...