Liquefied Natural Gas (LNG) shortages in Pakistan seem to be continuing for years because the country was unable to find a long-term contract bidder due to the competitive worldwide market.
Following a month-long extension of the deadline, the state-run Pakistan LNG Limited (PLL) published the results of two tenders for a total of 72 LNG cargos on Monday and stated that it had not received any bids. Initially, the PLL floated a tender for 72 cargs, or one cargo every month. One tender was to be issued for two lots, one for the first year (January 2023 to December 2023) and the other for the second five-year period (January 2024 to December 2028).
Germany is developing at least four floating LNG terminals on a war footing and has been signing longer-term contracts in the Middle East at record prices that can reach $40 per million as a result of Nordstream interruptions. U.K. thermal unit (mmBtu)
Through Standby Letters of Credit (SBLCs) with top-tier international banks, the Pakistani government had given its foreign suppliers an assurance that they would get timely payments for their spot shipments throughout the course of the following six years. In light of the current balance of payment difficulties, international corporations had sought payment assurances or sovereign guarantees.
“PLL will issue an SBLC from a scheduled bank having an equivalent long-term credit rating from a recognised international credit rating agency of at least AA from PACRA/JCR-VIS or higher… PLL may issue an SBLC through United Bank Limited (UBL), the company had explicitly stated, requesting that the bidders additionally seek confirmation of an SBLC from prestigious international institutions, specifically JP Morgan, Citi Bank, and Deutsche Bank. However, the PLL had turned down a sovereign guarantee from the ministry of finance.
The company has also stated that bidders who meet the eligibility requirements may submit documentary proof in the form of a letter of support from a producer or supplier of LNG, clearly stating that the relevant entity was able to supply Pakistan with at least one million tonnes of LNG per annum (MTPA) of LNG from 2023 to 2028. To prove that the bidder was a supplier, this had to be substantiated by a copy of a bill of lading, a final discharge report, or another document demonstrating the delivery of LNG cargo.
The PLL had rejected recommendations to accept bids in alternative cargo sizes and pricing standards other than those tied to Brent. Due to LNG shortages, the government has been forced to load-shorten in order to fund pricey imported furnace oil and coal-based projects while also unable to operate its over 5000 mw most efficient LNG-based power plants at full capacity.
Since the Ukraine-Russia war, which forced Europe to switch its gas supplies primarily from the international spot market to make up for energy shortages brought on by Russian gas disruptions, international prices have risen beyond expectations, making it impossible for Pakistan to secure any spot cargo over the past several months.
PLL had invited proposals as part of the two-part tender for 24 cargos for the first year (January–December 2024) and 48 cargos for the next five years (beginning in January 2024 and ending in December 2028).
