Eni chased ‘profits at any cost’ to fuel Pakistan energy crisis

28 April 2023

Eni chased ‘profits at any cost’ to fuel Pakistan energy crisis

Italian energy giant cited supply glitches to divert gas from Pakistan—and made half a billion dollars selling the fuel elsewhere, analysis suggests

Eni blamed unavoidable supply chain issues when it repeatedly cancelled gas shipments to leave Pakistan’s economy reeling. But a SourceMaterial investigation suggests that the Italian energy major made half a billion dollars selling the fuel elsewhere.

Pakistan hoped its energy woes would ease in 2017 when Eni signed contracts to supply the country with liquified natural gas, or LNG, monthly for 15 years. Yet as gas prices surged, Eni appears to have diverted Pakistan’s gas to higher bidders.

Meanwhile, regular blackouts have seen Pakistani factories shuttered and schoolchildren studying in semi-darkness. The government has paid heavy spot market premiums to replace lost supplies, threatening economic recovery from the coronavirus pandemic.

“In rural areas, some hospitals do not have backup generators. People cannot be operated on, you cannot do surgery—every aspect of human life is dependent on energy,” said Harris Khalique, secretary of the Human Rights Commission of Pakistan.

“If you are not living up to the promises you have made, it is absolutely unethical, they know people will suffer badly.”

In 2020, the prime minister at the time, Imran Khan, told the Climate Ambition Summit that Pakistan had “decided that we will not have any more power based on coal” as part of a shift towards renewable energy. Now, unable to sustain payments to replace Eni’s promised supply, the crisis-hit country is returning to dirtier fuel.

“LNG is no longer part of the long-term plan,” Pakistan Energy Minister Khurram Dastgir Khan said in February, announcing a plan to quadruple domestic coal-fired power. “We have some of the world’s most efficient regasified LNG-based power plants. But we don’t have the gas to run them.”

In response to questions from SourceMaterial, Eni called suggestions it had profited from defaulting on obligations to Pakistan LNG Limited (PLL), a government owned energy company, “false and unfounded”. 

“All undelivered cargoes to PLL in Pakistan were beyond the reasonable control of Eni and were caused either by events of force majeure affecting the relevant LNG suppliers or by disruptions affecting the LNG supply chain,” an Eni spokeswoman said.  “Eni has not benefited in any way from the situation and has in all cases evaluated and agreed alternative commercial solutions among the affected parties, including supply of replacement cargoes, rescheduling and deferrals.”  

Until late 2021, Eni was continuing to fulfil its Pakistani obligations largely uninterrupted, with regular monthly cargoes travelling from Damietta, an Eni-operated LNG facility in Egypt, to Bin Qasim port in Pakistan. 

But towards the end of that year, as the global economy’s emergence from the pandemic sent spot prices rocketing, Eni’s LNG ships abruptly stopped going to Pakistan and headed to Turkey instead. 

Between November 2021 and February 2023, Eni failed to deliver almost half of its promised shipments, set to account for a quarter of Pakistan’s LNG imports.

Eni says it was forced to cut off Pakistan’s supply because of problems further up the supply chain, and that it didn’t profit from the diversions. 

“Disruptions in LNG delivery suffered by Eni have been caused by the LNG supplier who didn’t fulfil the agreed obligations,” a spokesman for the company told Reuters in January. “Eni did not take advantage or benefit in any way from these defaults.” 

But analysis by SourceMaterial and Re:Common, an Italian campaign group, shared with Bloomberg News, suggests that fuel destined for Pakistan was sold to Turkey instead, earning Eni around an additional $550 million, according to estimates based on prices paid by Turkish gas company Botas at the time.   

In 2022, Botas received 19 Eni cargoes from Damietta; Pakistan got just one. Eni won tenders to supply Botas with LNG at what an industry source described as “staggering” spot market prices. 

Amid Eni’s claims that it was unable to send gas to Pakistan from Damietta, the Maran Gas Kalymnos, a tanker chartered by Eni until 2028, sailed from the Egyptian port to Turkey 13 times between October 2021 and February 2023 to supply Botas. 

“Fossil fuel companies such as Eni want us to believe they are contributing to energy security,” said Alessandro Runci, a campaigner at Re:Common. “This investigation shows how their only goal is to secure their own profits at any cost.”

Eni’s contracts require it to pay Pakistan 30 per cent of the originally agreed price for any undelivered cargo. But with Russia’s 2022 invasion of Ukraine sending prices skyrocketing, any charges were dwarfed by profits elsewhere.

“High prices on the spot market make those penalties look insignificant,” a senior industry figure in Pakistan told SourceMaterial. 

Eni’s spokeswoman said: “Only where mutually acceptable commercial solutions were not available, the contractual provisions for failed delivery were applied as foreseen in the LNG agreements in place.”

Headline picture: ReutersAlmamy