Pakistan recently took steps to scale back its LNG commitments, cancelling 21 cargoes from Italy’s Eni and initiating negotiations with QatarEnergy for deferring or reselling future deliveries. These moves reflect Pakistan’s developing surplus of gas supply relative to weakening demand.
According to Reuters.
Pakistan LNG Ltd (PLL), confirmed by industry sources, issued an official document on October 22 detailing cancellation of 11 cargoes scheduled for 2026 and 10 for 2027 under their long-term agreement with Eni. Only January shipments and one December cargo are remaining for those years under this contract agreement. Reuters provided more details.
Sui Northern Gas Pipelines Limited (SNGPL), the main domestic gas distributor, requested this reduction due to slack demand and rising renewable-power production. As flexible clauses exist in its contract with Eni, cancellations can be accommodated.
Reuters.
Due to an abundance of gas supply and decreased demand, excess capacity exists.
Pakistan’s LNG contracts with Eni and QatarEnergy cover an estimated annual volume of 120 cargoes–on average nine from QatarEnergy per month and one from Eni per month, according to Arab News.
However, Pakistan’s power generation sector has experienced a dramatic decrease in demand due to increased contributions from solar and hydropower as well as decreased industrial consumer use. Due to an abundance of gas supply in Pakistan, discount sales of domestically produced gas have begun and domestic production is being restricted as a result of this situation.
Pakistan’s oversupply has caused it to consider options such as LNG storage and resale off shore; this strategy, however, is complicated by destination clauses in many long-term contracts and discussions are currently taking place with Qatar regarding potential next steps.
Pakistan is in technical talks with QatarEnergy to renegotiate their delivery schedule under existing contracts, possibly including postponements or sales of cargoes. A Pakistani delegation visited Karachi for these discussions recently but no formal agreements have yet been made between both parties. According to Arab News reports.
Petroleum authorities in Islamabad describe the process as complex due to legal and financial implications associated with amending long-term contracts. Pakistan had already successfully postponed several cargoes from Qatar without incurring penalties in recent months, according to Reuters +1. There may also be strategic ramifications and challenges involved.
These cancellations and renegotiations reflect various strategic shifts:
Import Relief: Pakistan’s import bill for LNG imports is straining under pressure; aligning supply more closely with actual demand may help alleviate fiscal stress.
Contract Renegotiation Drive: This initiative shows the commitment to alter entrenched energy contracts and transition towards more flexible supply agreements.
Operational risk: With demand for gas falling, maintaining large contracted volumes risks unused capacity or forced discounting that has consequences for domestic producers and utilities alike.
Supplier Market Dynamics: LNG exporters such as Eni and QatarEnergy may reassign any freed cargoes to more profitable international markets, meaning Pakistan could lose priority access or face tougher renegotiation terms.
What to Watch Out for Next, A Few Highlights Are As Following
Pakistan and QatarEnergy will reach an agreement regarding deferment or resale agreements.
Pakistan may attempt to cancel additional cargo contracts or reduce supply under other arrangements.
How Eni and QatarEnergy react in terms of contractual adjustments, penalties or diversion of cargoes is the subject of our review.
Impact on Pakistan’s domestic gas pricing, generation mix and future renewable expansion.
Pakistan’s decision to cancel Eni cargoes and negotiate new Qatar supplies reflects immediate market realities: lower gas demand, excess supply contracts and an attempt at cost cutting through import reduction. How successfully Pakistan navigates legal and logistical hurdles associated with contract adjustments will ultimately determine whether this move represents only temporary adjustments or the start of a strategic overhaul of its gas import framework.