After LPG suppliers default, Pakistan scrambles to meet shortages
Nov 03, 2021
Islamabad [Pakistan], November 3 : Amid soaring prices of Liquefied Petroleum Gas (LPG) and default by suppliers, Pakistan is scrambling to meet energy shortages.
Two Liquefied Natural Gas (LNG) suppliers -- Gunvor and ENI -- declined to meet their contractual obligations to supply one cargo each in November, leaving authorities in a state of shock as they were already facing gas shortages. Moreover, LPG prices are touching Rs 217 per kg, up 67 per cent over last year, reported Dawn.
"We are working at multiple levels to minimise disruption," said a senior government official.
He said the Ministry of Energy had also activated diplomatic channels and engaged with the LNG suppliers in an effort to make them honour the commitment.
Energy Minister Hammad Azhar held back-to-back meetings with relevant companies in the energy supply chain, power and petroleum divisions and the finance ministry to cope with supply shortages through the diversion of gas from southern to northern region, prioritisation of sectors to be fed with limited gas availability and financing arrangements to ensure alternative imported fuels, reported Dawn.
There is an indication that ENI of Italy would address its default and deliver committed quantities even if with certain adjustments in schedule for technical reasons, but Gunvor was purely a commodity trader and unlikely to avoid wilful default, reported Dawn.
The price differentials between term contracts with Gunvor and ENI and prevailing global market prices are mouth-watering -- between USD 10-12 per million British Thermal Unit (MMBTU) and USD 30-35 per MMBTU -- apparently, a reason for the suppliers to default. On the other hand, the penalty for default in the contract is about USD 3 per unit (30 per cent of the contract price).
When compared with November of last year, the LPG prices have gone up 67 per cent from Rs 1,530 per cylinder and 97 per cent higher than Rs 1,298 per cylinder in June 2020, reported Dawn.
The relevant ministries - power, petroleum and finance - and supply chain entities like PSO, Pakistan LNG Ltd, SSGCL and SNGPL besides the exploration and production companies and power entities were called to examine if gas supply sources could be switched and how the difference could be met through alternative fuels.
Pakistan needs to address energy shortages before winter sets in.
