Pakistan defers LNG cargo from Italy's Eni yet again

Pakistan state run company — Pakistan LNG Ltd. — has deferred the fourth LNG cargo in a row which was supposed to arrive next month from Eni — an Italian company — under a long-term agreement because of falling gas demand.

The state-run company has already deferred three cargoes from Eni in February, March and April and now has deferred one more cargo for the month of May, said an official of the Ministry of Energy on Tuesday evening.

“We are in talks with the Italian company to defer another cargo for the month of June as the domestic demand from the industries and gas-fired electricity generating plants has been on the decline,” the official said.

Pakistan LNG Ltd signed a 15-year contract with Italy's Eni starting in 2017 at a 11.6247% slope of Brent for the first and second year, a 11.95% slope of Brent for the third and fourth year, and a 12.14% slope of Brent for the remaining years of supply. The agreement, due to expire in November 2032, is for one cargo a month.

Eni did not comment at the time of writing.

Lower demand

Saad Hanif, head of research at Ismail Iqbal Securities, said LNG demand has been reduced because of economic constraints and lower industrial output, which has contracted in the eight months of the current fiscal year.

He added due to lower demand in the domestic system, there has been a line pack issue which might curtail gas output from local fields. Thus, to keep the domestic fields spinning, imports of LNG have been deferred.

The domestic gas production has been on decline where for the week ended April 8, the gas production fell by 4% to 2,571 mmcfd compared with a week ago, the government data said. The major gas fields which showed drops include Mari Gas field which recorded a fall of 6% to 783 mmcf/day, Sui Gas field which showed a fall of 12% to 181 mmcf/day and Qadirpur field which fell by 17% to 69 mmcf/day.

In January, Sui Northern Gas, the country's biggest distributor, mainly supplying gas to the eastern province Punjab, asked to defer 11 cargoes of LNG bought from Eni in 2025, said a letter of the company to Pakistan LNG Limited, the state-run company which signs agreement with global companies to import LNG.

Under the terms, Eni is providing one cargo per month to PLL for supplying to Sui Northern Gas.

Cargoes from Qatar also deferred

The slower economic growth and lesser demand for electricity has already forced the government to defer five cargoes from Qatar.

Pakistan has signed two agreements with Qatar to import LNG cargoes for a period 15 years and 10 years at a slope of 13.7% and 10.2% at the slope of Brent crude price.

Pakistan usually imports between 120 to 140 cargoes annually, with the majority (approximately 85-100) coming under long-term contracts with Qatar.

The industrial production in the country contracted by 1.91% in Feb while in the eight months ended Feb 28, recorded slippage of 3.51%, according to data of Pakistan Bureau of Statistics.

Pakistan fiscal year runs from July to June.

There has been slower demand from the industrial units and the government has curtailed electricity production from LNG-fired plants as the cost of production has been higher compared with coal (both imported and local output), domestic gas, nuclear and hydel, an analyst said.

Electricity production from RLNG-run plants in March dropped by 8% to 1,528 Gwh as compared with the same period a year ago, said data from National Electricity Power Regulatory Authority on Wednesday. In the nine months of the current fiscal year, generation from RLNG plants dropped by 4% to 15,900 Gwh, the data said.