LNG procurement price In line with global average

Islamabad: Petroleum division on Friday said $15 per MMBTU price for four LNG cargoes booked for September deliveries is in line with global average for the LNG importing countries.

The division, in a statement, said the spot LNG commodity price has spiked recently due to a variety of supply-related issues and demand-related factors and the PLL's was forced to accept the four LNG spot tenders at $15 per MMBTU price for September delivery.

"... Otherwise, the replacement fuel (Furnace Oil), which is even more expensive, would have resulted in September power prices higher by at least 20 percent," the statement said.

"Moreover, if, due to RLNG shortage, the country is forced to burn diesel to fulfill summer power demand, the resultant incremental electricity generation cost in September would be almost 50 percent more expensive."

The statement said lesser of the two evils was opted.

"If we don't have enough RLNG in the system, the opportunity cost of forced gas load shedding for the industrial sector also has to be accounted for."

It 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 demand and supply factors internationally as economies open up post Covid.

On the timing of various spot LNG purchases, the division said no one, "without a crystal ball, can perfectly time or beat an international commodity market".

"There is also no evidence-based correlation between the spot purchase timing (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.