Long-term LNG deal to help meet winter demand, cut import bill

LAHORE: Federal government is not only upbeat over managing natural gas demand during winter but also sees a much lower import bill on account of securing additional cargoes under the long-the term deal, an official said on Friday.

In the backdrop of a widening gap between demand and supply in the global market, Pakistan’s failure to buy costly spot LNG for December-January period on up to $35/unit price has proved a boon as authorities manage to secure 169 percent cheaper cargoes under the long-term deal for the same period, saving millions of dollar, a government functionary claimed on Friday.

“We are expecting 11 cargoes in November-January period under LT deal which are at par with the flow of imported gas used to be seen in these days. It is in stark comparison to China, India, and Europe’s deals, many of which have attracted only half of their energy needs, leading to outages. Most importantly, we have managed LNG cargoes for winter months at weighted average of around $12-13 per mmbtu compared with $35/unit price in LNG spot market, Hammad Azhar, federal Minister for Energy told The News.

Also, he added, it does not make sense to buy $35/unit LNG spot as such a price would be unviable especially for generating power.

“If we had a marginal cost merit order, that would prohibit LNG plants from running at that high rate.”

Energy minister insisted that shortages in winter were not a result of LNG procurement shortcoming. “Conversely, it is because of domestic gas depletion and increase in domestic winter load every year,” he said.

“Sensing upward trend in the international market a couple of months back, we started to concentrate on making deal for winter months,” he said and added that a deal for initial two months had been sealed while negotiations were ongoing for ensuing month and Pakistan LNG Ltd was very hopeful for good news soon.

To a question, Azhar said natural gas demand and supply would be managed in winter months.

“We have in place a very attractive seasonal energy incentive package for power consumers too, which is expected to suppress demand for natural gas,” he observed.

It may be noted that Pakistan’s dependence on natural gas in the overall energy mix has been on the decline and the reduction of its share is due to continuous declining trend in production from natural gas reserves. According to an assessment, a typical winter shortfall has been estimated as high as four billion cubic ft (bcf) per day as domestic production falters at 2bcf/day against unconstrained demand of 6bcf/day.

To meet such a burgeoning imbalance in natural gas demand and supply, Pakistan has been importing LNG since 2015. At present, the capacity of the two Floating Regasification Storage Units (FRSU) for Re-gasified Liquefied Natural Gas (RLNG) is 1.2bcf/day and accordingly RLNG is being imported to mitigate gas demand-supply shortfall.

However, imports have failed to bridge gap due to lower capacity. The addition in LNG import infrastructure could not be made possible despite the fact that two groups have been in the run for building two more terminals although progress in this connection is too little to yield any tangible progress yet.