Azerbaijan seeks to build long-term energy ties

Published January 28, 2021
Rejecting default ‘news’, Socar confirms LNG cargo delivery on Feb 15-16. — Reuters/File
Rejecting default ‘news’, Socar confirms LNG cargo delivery on Feb 15-16. — Reuters/File

ISLAMABAD: Socar Trading — a commercial arm of the State Oil Company of Azerbaijan Republic — has offered supply of petrol and LNG cargoes to Pakistan LNG Ltd (PLL) and Pakistan State Oil (PSO) round the year on credit under a government-to-government (G2G) arrangement to build upon strategically friendly relationship between the two countries.

A Socar Trading spokesperson told Dawn that Azerbaijan is a major producer of oil and gas and operates several oil and chemical refineries in many countries. Socar Trading, which has won the tender and confirmed the delivery of an LNG cargo on Feb 15-16 window, was surprised to hear a reference to default on this delivery as no such action has taken place and the cargo was scheduled to arrive to Pakistan as contracted.

The spokesperson confirmed that Socar had offered petrol and LNG supplies on a long-term basis and the offer was based on commercially acceptable terms to both sides and never involved any undue pressure applied by any of the parties.

Informed sources said Socar had not only revalidated the bid bond of about $300,000 along with extension in its expiry period but has also submitted $3.73 million worth of performance guarantee to confirm delivering LNG spot cargo awarded to it by PLL on Jan 7.

On the same date, Emirates National Oil Company (Enoc) declined to deliver LNG on its lowest bid for Feb 23-24 window. Enoc had let its bid bond confiscated on default as it was reported to have found about $13-15 million higher return in the market.

Rejecting default ‘news’, Socar confirms LNG cargo delivery on Feb 15-16

The default by Enoc led the PLL to negotiate with the second lowest bidder Socar and third bidder Gunvor to deliver LNG to fill the gap on Feb 23-24 but both declined as supply shortages were already emerging in the market. However, the Socar confirmed its lowest bid for February 15-16 period which was also reconfirmed by Azerbaijan’s visiting foreign minister to Islamabad a few days ago as part of engagements with Foreign Minister Shah Mahmood Qureshi.

In parallel to this process, even since the signing of Intergovernmental Agreement on Energy between the two countries in 2017, Socar has also been in discussions with both PLL and PSO on term agreements. This also included a G2G arrangement for up to 11 cargoes to be delivered in 2021 to the authorities concerned. The offer required bilateral discussions around Japan Korea Marker (JKM) plus some negotiable premium.

Socar also offered an unconditional credit line without any sovereign guarantee, letter of credit or standby letter of credit. PLL’s spot cargoes have so far remained in the range of JKM minus 0.5 to JKM plus 0.99. The talks have not achieved significant progress.

The sources said Socar had also been awaiting a final decision on supply of petrol (motor gasoline) contract to PSO after more than two years of negotiations. This offer also included a 60-90 day revolving credit line of $100 million extendable on successful implementation. The offer required the award of monthly cargo to Socar lower than lowest bids of PSO’s other tenders.

These sources said some traditional traders have been moving around behind the scene to discourage offers for G2G arrangements for LNG and petroleum products including those from Oman and Azerbaijan after the successful implementation of LNG supply arrangements from Qatar and Oil supplies from Kuwait and others.

Published in Dawn, January 28th, 2021

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