Socar Trading, a commercial arm of the State Oil Company of the Republic of Azerbaijan, offered Pakistan LNG Ltd (PLL) and Pakistan State Oil (PSO) petrol and LNG cargo supplies on credit during the year under a government-to-government (G2G) agreement to build on strategically friendly relations between the two countries.
Dawn was told by a Socar Trading spokesperson that Azerbaijan is a major oil and gas producer and operates many oil and chemical refineries in several countries. Socar Trading, which won the tender and reported the delivery of an LNG cargo window on Feb 15-16, was shocked to hear a reference to the default on this delivery as no such action took place and the cargo was scheduled to arrive as contracted to Pakistan.
The spokesman stated that Socar had provided long-term supplies of petrol and LNG and that the deal was based on both sides’ commercially reasonable terms and never included any unfair pressure exerted by either group.
Informed sources said Socar not only revalidated the bid bond of about $300,000 along with an extension in its expiry duration, but also issued a performance guarantee worth $3.73 million to confirm PLL’s delivery of LNG spot cargo to it on January 7.
On the same day, at its lowest offer for the Feb 23-24 window, Emirates National Oil Company (Enoc) declined to deliver LNG. As it was reported to have found around $13-15 million higher return on the market, Enoc had let his offer bond confiscated on default.
Enoc’s default led the PLL to negotiate on Feb 23-24 with the second lowest bidder Socar and third bidder Gunvor to offer LNG to fill the void, but both refused as supply shortages in the sector were already emerging. The Socar, however, confirmed its lowest bid for the duration of February 15-16, which was also reaffirmed by the visit of Azerbaijan’s foreign minister to Islamabad a few days ago as part of the negotiations with Foreign Minister Shah Mahmood Qureshi.
In parallel to this process, since the signing of the Intergovernmental Energy Agreement between the two countries in 2017, Socar has also been negotiating term agreements with both PLL and PSO. This also included a G2G agreement for the supply of up to 11 shipments to the authorities concerned in 2021. Bilateral discussions around Japan Korea Marker (JKM) plus some negotiable premium were needed for the bid.
Without any sovereign guarantee, letter of credit or standby letter of credit, Socar even gave an unconditional credit line. So far, PLL’s spot loads have stayed within the range of JKM minus 0.5 to JKM plus 0.99. Significant progress was not made in the negotiations.
The sources said that, after more than two years of talks, Socar was still awaiting a final decision on the supply of petrol (motor gasoline) to PSO. This deal also included a $100 million revolving credit line of 60-90 days extendable for successful execution. The offer required the allocation of Socar’s monthly cargo lower than the lowest offers of the other PSO tenders.
These sources said that after the successful implementation of LNG supply arrangements from Qatar and oil supplies from Kuwait and others, some conventional traders have moved around behind the scenes to deter offers for G2G arrangements for LNG and petroleum products, including those from Oman and Azerbaijan.