ISLAMABAD: Amid widespread power outages, Pakistan failed to find a bidder for three LNG slots and received the highest-ever rate for another slot for the last week of July, as European customers snatched up the spot market quantities to compensate for Russian supply disruption.
On June 16, the state-owned Pakistan LNG Ltd (PLL) issued a tender for four cargos, one in each of the first and second weeks of July, and two in the final week. There was no bidder for the July 2-3, July 8-9, or July 25-26 delivery windows.
This was PLL’s third failed attempt to get an LNG cargo in the first week of July. The previous two tenders, issued on May 31 and June 7, respectively, drew two and one bidders, but neither was technically responsive. As a result, the bids were returned unopened.
This time, QatarEnergy Trading was the sole bidder for July 30-31. It cost a record-breaking $39.8 per million British Thermal Unit (mmBtu). According to sources, the government would find it difficult to accept such a high rate and should consider load shedding or maximizing generation from other fuels.
Pakistan’s highest-ever bid since it began importing LNG in 2015 was $30.65 per mmBtu in November 2021.
According to the sources, the US government has influenced spot market suppliers, in addition to Middle Eastern producers, to ensure maximum LNG supplies to European countries that were ready to lift the commodity at any price to meet shortages caused by Russian supply disruptions.
Even though the vast majority of cargos come from cheaper long-term contracts, re-gasified LNG prices in Pakistan have already risen 40% to $22-24 per mmBtu in recent months as a result of a string of spot cargos procured by the new unity government in its first month in office.
These LNG rates, combined with rising coal and oil prices, have increased electricity fuel costs by more than 100 percent, as evidenced by Rs7.95 per unit additional monthly adjustments claimed by ex-Wapda distribution companies (Discos) and over Rs11.38 per unit by K-Electric Ltd for the coming month.
Pakistan has two long-term contracts with Qatar, one involving six-monthly cargos at 13.37 percent of Brent signed by the previous PML-N government and the other involving two monthly cargos at 10.2 percent of Brent contracted by the PTI government. The other four cargoes per month are mostly arranged through spot tenders.
PSO and PLL, the state-run LNG importers, would benefit from even more expensive imports because they earn a windfall profit on account retainage and margins of 3.22pc and 3pc, respectively, which increases with higher import prices.
In recent months, Pakistan has experienced power outages ranging from three to seven hours per day. The previous administration was hesitant to order spot LNG tenders due to high prices, while long-term suppliers defaulted nearly a dozen times in the winter due to a volatile international market. The authorities have also struggled to secure furnace oil to compensate for the LNG shortfall. Over the reference prices, additional monthly fuel cost adjustments more than doubled.
Gas firms struggle to meet even half of firm power-sector demand of up to 900 million cubic feet per day, resulting in nationwide power outages. This comes at a time when PSO receivables have surpassed Rs600 billion and the Petroleum Division has reported a gross liquidity requirement of approximately Rs1.98 trillion for fuel imports to minimize load-shedding in the first quarter of the next fiscal year.
To meet power-sector demand from June to September, the government initially planned to arrange a maximum of 12 LNG cargos per month. The price of spot LNG cargos has risen due to the Russian-Ukraine war and global demand-supply dynamics, making it unaffordable for Pakistan. PSO imports furnace oil in addition to LNG, which adds to its financial constraints.
PSO and PLL have presented their estimated liquidity requirements for the summer months, with the former requiring Rs1.7 trillion — Rs427 billion in June, Rs445 billion in July, and Rs413 billion in August, and Rs414 billion in September — for both LNG and furnace oil.
PLL, on the other hand, has requested Rs278 billion over four months, including Rs98 billion this month, Rs44 billion in July, Rs80 billion in August, and Rs56 billion in September.
