Emergency bidding for January LNG cargoes attracts record high prices

ISLAMABAD: The second attempt by Pakistan authorities to arrange import of liquefied natural gas (LNG) in January through emergency bidding has attracted record high prices.

In a desperate attempt to fill the gap arising out of no bids for LNG vessels between Jan 8-18, the government exercised emergency clauses of the procurement rules to allow Pakistan LNG Limited (PLL) for the second bid.

In response, two bidders submitted bids for first January 8-9 window. This included the lowest bid of $15.28 per million British thermal unit (mmBtu) from DXT Commodities and $19.8 per mmBtu from Trafigura. Both these bids are the highest so far and for the first time quoted in dollar per mmBtu instead of slope (percentage of Brent price). However, the lowest bid of $15.28 per mmBtu works out at about 35 per cent of Brent.

The window of Jan 12-13 once again did not get a bid. The third window of Jan 17-18 attracted two bids of $12.95 per mmBtu from ENOC and $15.95 per mmBtu from Trafigura. In this case, the lowest bid of $12.95 per mmBtu works out at about 30pc of Brent price.ARTICLE CONTINUES AFTER AD

“This is economically unviable even for power sector and politically suicidal for the PTI-government,” said an official, suggesting that the government may have to cancel these bids. He explained that at $15.28 per mmBtu, the LNG was almost equivalent to $85-90 per barrel of oil against current Brent price of about $50 per barrel.

Unfortunately, the LNG price above 17pc of Brent becomes unviable and costlier than high speed diesel, crude and furnace oil (FO). This meant the power plants should be run on FO instead of LNG and if the former is available at local refineries it also saves foreign exchange.

The official added that normally suppliers and traders do not bid for LNG above 17pc of Brent but they tried to benefit from the desperation.

He said the government had pre-ordered in October a $6 per mmBtu vessel originally scheduled for delivery using contractual flexibility and now it was faced with $13 and $15 per mmBtu. At $6per mmBtu, the average 3.2 million mmBtu cargo worked out at about $19m while at $15.28 per mmBtu the same cargo would cost about $49m — almost $30m costlier.

“There was no logic of downward flexibility of January to October,” an executive of a ­private firm commented, saying that private companies had been pleading for third party access to arrange cheaper supplies.

Officials in the public sector gas companies, on the other hand, said the latest episode had exposed the ‘fly by night suppliers’ who vanished from the market when the country needed them the most to create competition. They said the government should ensure trust worthy and long term operators to avoid blackmailing by traders.

The officials said the government was left with no option but to reject these tenders and immediately order Pakistan State Oil to arrange FO for power plants which would generate cheaper electricity. Special Assistant to the Prime Minister Nadeem Babar did not respond to calls for comment.

Last week, Pakistan could not get even a single bid for three LNG cargoes meant for first half of January and attracted the highest prices for second half of January mainly because of delayed tenders amid rising international prices.

PLL had issued tenders for six cargoes for delivery between Jan 8 and Feb 1. In response, no supplier or trader bid for first three slots between Jan 8-18. This was the first time that Pakistan did not get a bid since it entered the spot market five years ago.

To fill up the gap for first three ships in January 8-18 period, the PLL had floated urgent tenders on Friday using Section 42 (d) III of procurement rules that allow negotiated bids for “reasons of extreme urgency brought about by events unforeseeable by the procuring agency, the time limits laid down for open and limited bidding methods cannot be met. However, the rules required that the circumstances invoked to justify extreme urgency must not be attributable to the procuring agency.

Experts quoted three major reasons for poor response. The delivery window of less than 45-60 days always carried a premium as was happening with Pakistan at present. Also, an Australian project was closed which created supply shortages. Moreover, the launch of Covid-19 vaccine trials in major countries also jacked up LNG demand and thus increased the price of both LNG and oil. As if that was not enough, the domestic controversies over the LNG prices also shied away some ­bidders.

The Petroleum Division said the major reason for the poor response was supply shortages and adverse domestic media comments even though six ­bidders did come up for end-January parcels.

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