Pakistan thought it had secured natural gas to fuel its economy in 2021. However, the world’s top fuel suppliers had other ideas, Bloomberg discussed in a detailed cover story on Thursday.
As geopolitical tensions flared between Russia and Ukraine in late 2021, the world faced the specter of skyrocketing energy prices. In Geneva, Gunvor Group Ltd., a Swiss-based commodities firm hatched a plan that would have severe repercussions for poor countries like Pakistan.
With Russian forces on the verge of invading Ukraine, Gunvor traders sought to capitalize on the imminent energy crisis by canceling a lucrative liquefied natural gas (LNG) deal with Pakistan, redirecting the shipments to more profitable markets dominated by far richer countries, stated the report.
As Gunvor and Eni SpA, another energy giant, severed their commitments, Pakistan plunged into an energy crisis that threatened the livelihoods of over 240 million citizens. Forced to pay record spot-market rates for LNG from other suppliers, the nation’s foreign currency reserves dwindled, pushing it to the brink of default.
Factories were shut down, crippling industries and leaving workers in poverty, while fertilizer plants ceased operation, endangering food production. To survive, Pakistan sought compensation through arbitration against Gunvor and Eni, adding another layer of complexity to an already dire situation.
The Bloomberg story explores the intricate schemes by Gunvor and Eni, leveraging legal terms such as “force majeure” to justify canceling contracts. The traders’ decisions were described as legal on the surface but demonstrated a ruthlessness that exploited the vulnerabilities of an underdeveloped nation like Pakistan. Gunvor, in particular, used novel interpretations of contract terms to maximize profits, diverting LNG shipments to wealthier countries and achieving record profits of $2.4 billion in 2022. Meanwhile, Pakistan had it rough and faced massive power outages mostly during winter seasons.
The consequences for Pakistan were devastating. The energy crisis forced the country to turn to the spot market, paying exorbitant prices for replacement LNG. The government’s attempts to seek justice through arbitration would take years, leaving Pakistan grappling with an immediate need for gas. The nation’s dependence on LNG, rooted in a history of mismanagement and subsidies, came back to haunt it as traders prioritized lucrative deals with more affluent markets.
As Pakistan struggles to recover, its energy industry faces a harsh reality: in the cutthroat world of commodities, profit often takes precedence over ethical considerations. The betrayal by top LNG traders like Gunvor and Eni sheds light on the challenges faced by Pakistan in navigating international markets and underscores the urgent need for diversified energy sources that are sustainable and less prone to default.
