The state-owned Pakistan LNG Ltd, which is the main buyer of liquefied natural gas, is considering canceling two long-term contracts because of a slump in market prices and abundant production, which have created opportunities for cheaper supply, reported Bloomberg.
Pakistan LNG Ltd. is weighing the possibility of exercising termination clauses in contracts it signed with Eni SpA and Gunvor Group Ltd. in 2017.
However, the report stated that as of yet, no final decision has been made and the company is seeking input from the Ministry of Energy.
According to Bloomberg calculations, canceling both deals may cost the Pakistani firm nearly $300 million in penalties.
Pakistan LNG passed on the questions to the energy ministry, which didn’t respond to requests for comment.
Gunvor declined to comment, while Eni didn’t respond to requests for comment.
The report stated that a glut of new LNG supply and sputtering demand growth have sent prices to record lows, straining more expensive long-term supply deals based on oil prices.
Pakistan LNG is still open to sourcing supplies through new or revised contracts if the pricing terms are more favorable, according to one person privy to the proceedings. The country is seen as one of the biggest growth markets for the fuel, with BloombergNEF forecasting imports growing 80% from last year’s level by 2023.
Under the terms of the contracts, which are posted on Pakistan LNG’s website, the company must give a 90-day termination notice and pay damages equal to the value of six cargoes, which is based on average Brent prices for the three months preceding the month the notice is served.
Bloomberg reported that this will be about $142.5 million for the Gunvor deal and $148.8 million for Eni.