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February 11, 2020

Window opens for Pakistan to hit a low-cost LNG jackpot

Business

February 11, 2020

LAHORE: Is the government ready to benefit from the extremely low prices of Liquefied Petroleum Gas (LNG) in the international market through various short and long-term options?

This is the multi-million-dollar question being asked by various stakeholders as cheap availability of LNG and projection of continuation of this trend has kindled hope of inexpensive natural gas for end consumers.

Robust spot purchases, enhancing import capacity, and creating infrastructure for storing LNG are some of the options for reducing basket price and increasing supplies. A former senior official responsible for LNG imports, who didn’t want to be named, said Pakistan should benefit from low international prices of LNG by robustly buying from the spot market.

Similarly, he added that negotiation for 5-10-year contracts should be initiated as prices might remain low in medium- to long-term. “Every effort should be made to reduce the basket average price as consumers direly needed such solace,” he said.

On setting up of storage terminal for maintaining reserves, not only for making the most of the benefit from low prices, but also to enhance supplies during high winter demand, the ex-official said such initiative would require considerable capital cost.

Ghiyas Paracha, head of CNG Association of Pakistan, said the government should encourage LNG imports through private sector. “This is the only viable option to be competitive in the LNG import sector and ensure availability of least-cost Regasified Liquefied Natural Gas RLNG to end-consumers,” Paracha said.

He added the government must simplify process of LNG import through private sector. “There is no ease in importing LNG right now,” he said and added that some elements had slowed the whole process of LNG imports. It would dent economic growth badly, he lamented. “There is need to end monopoly on import of LNG as it has emerged as one of the primary fuels, following dwindling trend of gas production domestically,” Paracha said.

Special Assistant to Prime Minister on Petroleum Nadeem Babar said, “The government is taking benefit from low LNG prices by buying on spot”. “Average is calculated for all LNG purchases and thus all sectors get benefit of lower average,” Babar said.

To a question about building a permanent LNG storage terminal or considering other options of storage to maintain reserves of cheap gas and also for ensuring enhanced supplies in winter, Babar said, “One party is working on land-based terminal while government is also doing study on building LNG storage”.

It may be noted that spot LNG prices in Asia hit new lows as it faltered to below $3 per million British thermal units (mmBtu) following a surge in supplies and shrinking demand due to virus outbreak in China.

According to a report, the average LNG price for March delivery fell to $2.95/mmBtu this week. Prices for cargoes delivered in April are estimated to be $3 to $3.70/mmBtu.

According to another report, the price of LNG started to show downward trend at the onset of winter last year. By end of November 2019, its price plunged 43 percent from a year ago as supply outstripped demand.

Analysts predicted there’s little room for an uptick in the near future given strong competition and a slowing global economy. Spot LNG prices in Asia fell down to around $5.70/mmBtu by last week of November 2019 from over $10 in the same period last year. This is in large part due to the production of the gas at new fields in the US, Australia, and elsewhere. Much to the contrast, LNG prices were even higher at nearly $20 in the winter of 2014.

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