Ministry seeks action over violation of terms for LNG supply

As background engagements continue to call another special meeting of the Cabinet Committee on Energy (CCoE) to allow replacement of Engro’s LNG terminal for maintenance and statutory inspections, the Ministry of Maritime Affairs has demanded imposition of penalties on Engro for “violating the terms and conditions and jeopardising the energy security of Pakistan”.

Informed sources said the second special meeting of the CCoE for allowing dry docking of Engro’s Exquisite vessel and resultant gas load management plan would be held in a day or two following a meeting of stakeholders — Sui Southern Gas Company, Pakistan State Oil and Engro LNG — at the Ministry of Law.

Meanwhile, an Engro official said the company’s replacement vessel Sequoia had already moved from Singapore and would be taking LNG on its way and was expected to arrive at Port Qasim on June 26.

“We expect that sanity will prevail and the matter will stand addressed amicably,” he said, adding the law ministry had reached a conclusion during a stakeholders’ meeting that withdrawal of Engro’s Floating Storage and Regasification Unit (FSRU) was according to the law and within the ambit of the contract. The existing FSRU has to leave Port Qasim on June 29 at all costs, he said.

On Friday, the CCoE had in its special meeting rejected a summary of the Petroleum Division seeking withdrawal of Engro’s LNG terminal and resultant gas load management plan, saying the mandatory inspection had been delayed for Engro’s own reasons and for no fault of the government or its entities and hence manufacturing output could not be compromised through gas shortage while the country’s economic recovery was just taking roots.

The official said Engro Elengy and the operators of Exquisite had made their best efforts to coincide the vessel replacement with shutdown already planned by the gas companies for August. However, Class Society did not allow this to happen since the inspection due in March 2020 was delayed due to Covid-19 restrictions and certification was twice extended for six months and then two-month final deadline for the vessel to be available for inspection before July 10 at all costs, otherwise the vessel would not be allowed to operate and lose insurance cover.

The official said it was also not possible to change Class Society because all such regulators operated under the International Maritime Organisation (IMO) umbrella, had handshake arrangements and did not overrule each other. He said Engro had been engaged with SSGCL, PSO, SNGPL and the Ministry of Energy since March this year, but they had not been able to address the issue of their internal liquidity damages for such a long time.

Responding to a question, the Engro official agreed that SSGC also had issues with testing certifications of the replacement vessel. However, the replacement vessel was new, larger than the existing vessel and much efficient. “These are not big issues. We keep on managing such matters with SSGCL on a daily basis. This is well within the contract,” he said.

The maritime affairs ministry, on the other hand, has demanded that the operator (Engro) “be penalised for violating conditions and jeopardising the energy security of Pakistan”. It said the LNG Service Agreement (LSA) clearly required that not later than July 1 in the year before the programme year, the operator had to provide to the customer (SSGCL) the planned works periods, including any period for dry docking.

According to this, Engro was under an obligation to provide the planned works period not later than July 1, 2020, including any period for dry docking. “Therefore, EETPL (operator) was required to inform SSGCL regarding the dry dock. In this case, EETPL fails to comply with the clause 13.1.3 which in turn will cause severe impact on the supply chain in the shape of shortage of gas in peak demand season. Hence, this dry docking cannot take place in this programme year as per LSA,” the ministry said.

It added that the LSA was signed between SSGCL and EETPL on April 30, 2012 and the agreement was valid for a period of 15 years from the commercial operation date (COD) of the terminal i.e. March 2015. Dry dock activity was due in March 2020, which has been delayed for 13 months owing to Covid-19. As the pandemic is still going on urgent dry dock activity is communicated by Owner Exelerate Energy on June 3, 2021, with a deadline of June 30, 2021 to comply with Class Society’s requirements.

“The extensions of the vessel’s certificates have not only jeopardised Pakistan’s energy security and RLNG supply chain, but also safety and security of the port”, the maritime affairs ministry said. Since renewal of class certification was the problem of the operator, why the country should pay for the follies of the operator, it asked.

The ministry demanded that contractual violations must be compensated by EETPL to SSGCL, along with negative implications and risks to the state-owned entities like PSO, PLL, SSGCL, SNGPL and exploration and production companies related to dry docking, on June 30, 2021. It said it should be answered as to who would pay the capacity payments to government power plants in the event of non-supply of RLNG — SSGCL, SNGPL or EETPL — if dry dock was allowed at this stage.

The ministry pointed out that alternative inspection options were available and should be utilised as severe gas and power outrages would be observed throughout the country owing to almost zero regasification from terminal for a week due to dry docking.

It said coupled with possible non-availability of LNG, spot cargoes and annual turnaround — (Qadirpur and KPD (OGDCL) fields) — will be around 296mmcfd, which can create huge unrest and hue and cry in the country. The cost estimates of unserved energy — power and gas — should also be made on account of economic sectors — industry, CNG stations, fertiliser and power sector — for a week, which will be in billions.

On top of that, “each spot cargo is about $10.24 million more expensive than Qatargas long-term cargo as spot cargo is around S12/mmbtu and Qatargas is $8.8/mmbtu”. The ministry said purchasing from spot market would increase that would result in burdening the consumers with expensive RLNG because Q-Flex of Qatargas could not dock at second LNG terminal.

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