Pakistan to buy first spot LNG in over a year at premium prices

LAHORE/ISLAMABAD: Pakistan is likely to buy its first spot liquefied natural gas (LNG) cargo in more than a year, as it seeks to bridge the gap between winter demand and supply of natural gas, but at a hefty premium to the prevailing market price.

Pakistan LNG Ltd. (PLL), the state-owned importer of liquefied natural gas, received three bids for two spot cargoes in October, with prices ranging from $15.97 to $19.39 per million British thermal units.

Trafigura, a Singapore-based trading company, offered two cargoes at $18.39 per million British thermal units (mmBtu) to $19.39 mmBtu while Vitol, a Swiss-Dutch energy and commodity trading company, offered it at $15.97 per mmBtu.

Both bids are well above the current spot price for LNG in Asia, which was assessed at $13.-13.5 per mmBtu. PLL had sought two cargoes for delivery on Dec. 7-8 and Dec. 13-14 at Port Qasim in Karachi.

The bids reflect the high premiums that LNG suppliers are charging for spot cargoes amid tight global supply and strong demand from Asia and Europe. The prices also include additional costs for letter of credit confirmation, country risk and perceived lack of interest from Pakistan, according to industry sources.

A senior official at the energy ministry said LNG suppliers also tended to quote higher prices for Pakistan as they expected the country to buy cheaper cargoes from Azerbaijan's SOCAR, which has a framework agreement with PLL to provide one cargo per month on flexible terms and with a 30-day credit line.

“LNG suppliers come with high bids when it comes to Pakistan as they know that Azerbaijan’s SOCAR will be asked to provide distressed LNG to PLL below the lowest bid that it received,” the official said.

"Interestingly on Wednesday evening, SOCAR also offered a cargo just below the lowest bid $15.97 that was submitted by Vitol," he added.

SOCAR was not among the bidders, which included Trafigura and Gunvor, according to bid details.

Pakistan signed a framework agreement with SOCAR in July 2021 for one year with an option to extend for another year, after an inter-governmental agreement between Pakistan and Azerbaijan in 2017.

Under the agreement, SOCAR is bound to offer one LNG cargo per month to PLL, with a pricing formula linked to Brent crude oil.

The official said that if Pakistan continued to rely on SOCAR for distressed LNG supply, it might discourage other suppliers from participating in future tenders or lead to higher prices.

PLL Managing Director Masood Nabi did not respond to requests for comment. Pakistan imports LNG mainly through long-term contracts with Qatar Gas, which supplies eight cargoes per month at different prices.

PLL had floated a tender on September 27, 2023, for two LNG cargoes of 140,000 cubic meters each, to be delivered at Port Qasim in Karachi. The tender was part of PLL’s efforts to meet the country’s winter demand for natural gas, which accounts for over a third of its power generation.

However, Pakistan has faced challenges in procuring LNG from the volatile spot market since the outbreak of the war between Ukraine and Russia in April 2023, which has disrupted gas flows to Europe and Asia.

Several previous attempts by PLL to buy LNG have failed due to high prices and low availability of cargoes. In late July this year, PLL rejected a bid for winter LNG cargoes that was 30 percent higher than the market price.