Page 6 - GLNG Week 08

GLNG COMMENTARY GLNG
Pakistan LNG considers terminating supply agreements
Pakistan LNG is reportedly considering cancelling two long-term LNG supply contracts to take advantage of low spot prices for the fuel
PROJECTS & COMPANIES
WHAT:
Pakistan LNG is reportedly looking into terminating two long-term LNG supply contracts.
WHY:
The state-owned company can obtain better prices for the fuel on the spot market currently.
WHAT NEXT:
Pakistan LNG may be open to revising the terms of existing contracts, or negotiating new ones.
THE collapse in LNG spot prices is causing some buyers to question the viability of long-term supply contracts that were struck at a time when their terms were more favourable. This week it emerged that state-owned Pakistan LNG could be among those buyers that are reconsidering their contracts.
Citing sources familiar with the matter – but wishing to remain anonymous because it is pri- vate – Bloomberg reported that the company was weighing up the possibility of exercising ter- mination clauses in two contracts. The contracts in question are reportedly with Italy’s Eni and Swiss-headquartered commodity trader Gunvor Group, and were signed in 2017.
According to the sources, the company has sought input from the Pakistani Ministry of Energy before making a final decision on the matter. Bloomberg noted that none of the parties involved were willing to comment on the matter. One of the sources said, however, that Pakistan LNG remained open to revising the terms of existing contracts – or negotiating new ones – if more favourable terms were on offer.
Targeted for termination?
Under the terms of the contracts, Pakistan LNG is required to give a 90-day termination notice and pay damages equal to the value of six car- goes, based on average Brent prices for the three months prior to the one during which the notice is served. According to Bloomberg’s calculations, terminating both deals may cost Pakistan LNG nearly $300mn in penalties – about $142.5mn for the Gunvor deal and $148.8mn for the one with Eni.
The two supply deals are oil-indexed at a rate that prices cargoes more than double the level of current spot prices. The Japan/Korea Marker (JKM), Asia’s spot LNG benchmark, fell to record lows of $2.71mn British thermal units ($74.96 per 1,000 cubic metres) earlier in Febru- ary. By contrast, the Gunvor contract is priced at 11.62% of Brent – or about $7.42 per mmBtu ($205.24 per 1,000 cubic metres) based on the average price of the crude benchmark between November 2019 and January 2020. The 15-year Eni contract, meanwhile, is priced at 11.6247% of Brent for the first two years, 11.95% for the
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w w w . N E W S B A S E . c o m Week 08 28•February•2020