Mismanagement in liquefied natural gas business

Inefficiency and mismanagement in the liquefied natural gas (LNG) business has burdened Pakistani consumers, who are forced to pay an extra billions of rupees.

In a recent deal, Pakistan LNG Limited (PLL) put an additional burden of around Rs30 billion by rejecting an offer of the Azerbaijan state firm, Socar, and from one of the Gulf-based producers that were submitted earlier this year.

PLL recently floated bids for nine LNG cargoes at the highest price of over $10 per mmbtu, which accounts for 16-17% of Brent crude.

Moreover, it refused to award two LNG cargoes at over $11 per mmbtu by Trafigura and Vitol. The company revised the terms and specification and floated another bid for two LNG cargoes. Interestingly, only one bidder participated for one cargo at the highest price of over $12 per mmbtu, which is another additional burden on the consumers for awarding this contract.

Socar had a government-to-government deal in place since 2017 and offered eight cargoes of LNG at $6 to $7 per mmbtu back in March. However, rather than taking responsibility for accepting this offer, PLL preferred to choose an expensive but safer deal for its nine cargoes, which ranges between $10 and $12 per mmbtu.

PLL has blocked entry of the private sector into the LNG market and it is not only securing LNG deals with traders at expensive rates, but it is also forcing consumers to utilise the pricey gas. The company had failed to float tender for LNG cargoes at a time when gas prices had crashed due to lockdowns fuelled by the Covid-19 outbreak.

The cabinet had decided and approved the implementation of third-party access rules by opening up the market for private sector.

In this regard, the Oil and Gas Regulatory Authority had also notified all related rules and awarded licences to private parties for LNG import.

However, PLL refused to award the unutilised capacity to the private parties for LNG import for their own use. Sources said that private shareholders in gas companies had put their cards on the table, which blocked the entry of private sector into the LNG import business.

A key official dealing with LNG working in PLL had openly said gas companies would lose their business. In countries like the US, deregulation has helped revolutionise the oil and gas markets, however, in Pakistan, the gas companies are not keen on deregulation.

When contacted, a senior official of PLL told The Express Tribune that the price of Socar was higher. He claimed that PLL had no additional capacity to offer to the private sector.

However, his claims do not justify the $99 million that the consumers paid over the last three years for not utilizing the full capacity.

Also commenting on the matter, a PLL spokesperson said, “The price of seven awarded cargoes for July-August 2021 ranges between $10.2 per mmbtu and $10.8 per mmbtu. This range is in line with market conditions on the bidding date. Prices above market trends have not been awarded.”

He said that PLL cannot comment on the specifics of any offer received from LNG suppliers for supply of LNG cargoes, however, “we can confirm that no such price lower than the awarded price was ever received”.

On third-party access to the terminal, the spokesperson said, “Applications were invited from private players for terminal capacity, however, due to non-compliance of applications as well as PLL’s own requirement of capacity, it has not been allocated to any third party.”

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