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March 27, 2020

Pakistan fails to take advantage of low energy prices

Business

March 27, 2020

LAHORE: Despite expressing resolve to take advantage of record low crude oil and liquefied natural gas (LNG) prices, Pakistan is not maintaining energy supply chain mainly due to lack of a coherent and systematic approach, according to an expert opinion.

Unlike regional countries, the capacity of LNG import infrastructure is not being fully utilised. Oil imports are also not up to the mark, keeping in view availability of attractive import window. Essentially, there is lack of systematic approach in meeting energy needs of all sectors, especially power, fertiliser and CNG sectors.

“We have failed to smartly place import order with a view to fulfilling energy requirements amid a rare opportunity to significantly cut cost for the benefit of end consumers,” a leading energy expert said, requesting anonymity.

Pakistan needs to adopt the most favourable energy scenario by evaluating past data and taking action on the root cause rather than a sensational declaration of Energy Emergency or panic of circular time bomb and of LNG supply chain facing collapse or finger pointing. Pakistan’s first mantra should be to use knowledgeable persons and talent available to move forward in achieving our collective goals by coming together and undertaking dialogue, the energy expert said.

At Brent of $40, LNG has already been the cheapest of imported gas. Even when prices were not so attractive, LNG saved $5 billion over the last five years after it substituted the expensive furnace oil over 19 million ton LNG imported since 2015 and GDP saving of two percent, he said.

Now due to oversupply in the market, as per Goldman Sachs, bearish cycle might end in 2021 due to lower production in Europe and in the US, along with higher LNG purchases. This would help tighten up the market and forecasts Japan Korea Market (JKM) prices in the winter of 2020/2021 at $5.80/mmntu, and summer 2021 prices at $5.50/mmbtu.

Tender results of GSPC India for spot cargoes to be delivered for April, May and June were awarded at $2.50-$2.60 / mmbtu, $2.70-$2.75 / mmbtu and $2.85-$2.90/ mmbtu. Pakistan’s April, May, and June prices should be similar to or slightly higher than India and Bangladesh at Brent average of $30 as all three signed contracts with QGas at similar slope and with/without a constant.

Interestingly, the eight cargoes to be now procured from Gunvor, QGas and ENI will be at an average price of $3.2/mmbtu (12.97 percent Brent at $30) which would increase to $3.04/mmbtu if Pakistan was to buy four additional cargoes at future spot price of LNG of $3.3/mmbtu (10 percent Brent at $30), thereby saving around $200 million/year in terminal charges. What were we waiting for the energy expert posed a question, and said that Asian spot LNG prices have started to rise and the average LNG price for April delivery into northeast Asia LNG-AS was estimated at about $3.40/mmbtu. Prices for cargoes delivered in May were estimated to be at around $3.30/mmbtu.

Spot prices have gained slightly, but they were still trading at their lowest for this time of year. They fell to a record low last month as the coronavirus outbreak dented industrial gas demand from China, the world’s second-largest LNG buyer. While more businesses have reopened in China in recent weeks, analysts do not expect activity to return to normal levels until April due to covid-19. “The forward curves for prices suggest that there might be some shut-ins of LNG, although this may not necessarily be from the US.”

So why is Pakistan not positioned and seemingly lagging in taking advantage of the global gas glut when gas was selling in the future at $2.50/mmbtu and now at $3.4/mmbtu when other price conscious buyers are already taking advantage of record low prices and soaking up some of the excess supply. Window maybe short, as short-term demand for LNG has improved over the past month. India’s Torrent Power sought a cargo for early May, GSPC sought 11 cargoes for delivery over April to March, next year and GAIL may also issue a swap tender offering cargoes from the US and seeking cargoes for delivery into India,

Chinese utility Guangdong Energy group was also seeking five cargoes for delivery over April to December whereas Turkey’s EgeGaz also sought two cargoes for delivery in April and June. Still, supplies are ample as cargoes were offered in the spot market.

He was of the firm view that Pakistan has ability to buy four cargoes on spot every month as terminal capacity was spare. However, he also urged the government to ensure utilisation of LNG in the power sector, which in the first week of March used under 140mmscfd vs demand of 240mmscfd.

There was need for SNGPL to secure additional customers by providing LNG to the export industry as well as the CNG sector, he added,

At the same time, the Ministry of Energy should review indigenous gas production (average price proposed by OGRA at Rs707-785/mmbtu. Further, it should defer cargoes of LT contracts if beneficial, by reviewing PPRA rules for gallop international tender or reopening signed SPAs if deemed prudent. All of which would result in actions undertaken with utmost professionalism and good faith.