- Typically when exporters face those kinds of challenges, they replace the deliveries by buying a shipment on the spot market, but Eni and Gunvor haven’t done that.
- Gunvor declined to comment for this story.
- Pakistan’s contracts called for a more modest 30% penalty for cancellation, most likely in exchange for lower prices overall.
The European Union’s attempt to phase out Russian oil is intended to punish Moscow for its invasion of Ukraine as reported by SCMP.
Plunging into darkness
It’s also wreaking havoc thousands of miles away from the conflict, plunging Pakistan into darkness, undermining one regime and threatening the stability of the country’s new leadership.
It made a massive investment in liquified natural gas and signed long-term contracts with suppliers in Italy and Qatar.
In order to avoid blackouts during the Eid holiday last month, the government paid nearly $100 million to procure a single LNG shipment from the spot market, a record for the cash-strapped nation.
In the fiscal year ending July, the country’s costs for LNG could top $5 billion, twice what they were a year ago.
Even so, the government can’t cushion the blow for its citizens: The International Monetary Fund is in talks to bail out the nation with a key condition that it cuts fuel and electricity subsidies.
Last week, the government announced a new raft of energy-saving measures.
Increasing deliveries
“I am acutely aware of the hardships people are facing,” Prime Minister Shehbaz Sharif said in a tweet in April ahead of the Eid holiday.
There’s a little reprieve on the horizon.
Meanwhile, Europe has been demanding more and more LNG.
Policymakers in the European Union drafted a plan to significantly increase LNG deliveries as an alternative to Russian gas as they break ties with President Vladimir Putin’s regime over the war in Ukraine.
At the new, lower prices, poorer countries could finally consider the fuel.
Suppliers set their sights on these new markets, and when Pakistan issued a tender for long-term LNG supplies, more than a dozen companies bid for its business.
Damaged business relationship
Such defaults are almost unheard of in the LNG industry, said Bruce Robertson, an analyst at the Institute for Energy Economics and Financial Analysis.
Gunvor declined to comment for this story.
It damages the business relationship, and it’s often very, very expensive.
According to Valery Chow, an analyst at Wood Mackenzie Ltd., “it’s very rare for LNG suppliers to renege on long-term contracts beyond force majeure events.”
At this point, prices in the European spot market are high enough to more than offset those penalties.
Prime Minister Imran Khan was ousted in April after a fallout with Pakistan’s army over a range of issues, including his management of energy supplies and the larger economy.
Economic misery
The expense is creating its own knock-on effects.
Emerging nations around the world are struggling to meet the needs of their citizens within the constraints of their budgets.
Pakistan is also exploring long-term contracts with Russian LNG suppliers.
Europe’s massive shift may prompt other countries, like India and Ghana, to rethink long-held plans to increase dependence on the super-chilled fuel.
In a recent note, Fereidun Fesharaki, chairman of industry consultant FGE, sharply criticized European energy policies for creating “higher prices, economic scarcity and economic misery” around the world.
Did you subscribe to our newsletter?
It’s free! Click here to subscribe!
Source: SCMP
