Pakistan Pays Highest Ever Price for LNG Cargo Import

The government of Pakistan did not enter into future liquefied natural gas (LNG) contracts in the recent past, hoping for the prices to go down. However, the prices have gone up, and consequently, Pakistan now has to buy even more expensive LNG to avoid a shortfall in the country. LNG shortage can lead the power plants to shut down or operate at less capacity, posing a risk of nationwide blackouts. ALSO READ Natural Gas Supply To Various Sectors Surges To Over 4,000 MMCFD Earlier this month, Pakistan rejected a tender for September cargoes betting that the prices would fall. However, this week Pakistan bought four cargoes for delivery in September, at the cost of nearly $15 per million British thermal units (mbtu). This is the highest price Pakistan has paid since it began importing LNG in 2015, Bloomberg reported. With surging energy prices and overall inflation in the country, this higher cost comes as an added strain on the economy and the budget. There is also a possibility of this increased price being passed on to domestic consumers. The price hike in LNG is taking place at a global level, the news report said, adding that Dutch gas – the benchmark for Europe – is trading at a record high as well. ALSO READ IEEFA Points Out Major Flaws in Pakistan’s Long-Term Power Generation Plan In the past, the price of LNG had fallen around this time of the fiscal year, and Pakistan was hoping for the same trend to repeat this year. The current spot price for Asian LNG is trading roughly 67 percent above the 10-year average, Bloomberg informed. Petroleum Division responded to this news and said that roughly one-third of the country’s monthly LNG purchases are on a “spot” basis (and the remaining two-thirds on a long-term contract basis) which is basically in line with the global average for the LNG importing countries. The statement read as follows: ALSO READ Debt-Recapitalization And Refinancing Scheme For NPPMCL Discussed It is also worth mentioning that crude oil prices are currently around $75 per barrel (and the price of imported coal has also increased by almost 45 percent since January this year), so the prices of most energy-related commodities are on the upward trend due to (higher) demand & (limited) supply factors internationally as economies open up post-Covid. To the critics who question the “timing” of various spot LNG purchases, it is pertinent to mention that no one, without a crystal ball, can perfectly time or beat an international commodity market. ALSO READ OGDCL Discovers Gas and Condensate in KP There is also no evidence-based correlation between the spot purchase timing (i.e. earlier or later) and the actual price of LNG as it varies (up and down) from time to time due to a host of demand-supply factors. As a matter of policy, Pakistan can opt for 100 percent long-term contract purchases (either on a fixed $ per MMBTU, or a fixed percentage of varying Crude Oil price), but even that would expose it to an “opportunity cost” should the spot prices fall at any stage due to any number of reasons. The government is, however, doubling down on its efforts to enhance local gas production by launching the next exploration & production bidding round, targeting high-potential “surrendered” and “under litigation” blocks, by the year-end, InshaAllah.