Saturday July 02, 2022

Pakistan gets costliest bid for LNG cargo

June 24, 2022

LAHORE: Pakistan on Thursday received the costliest bid for buying only one cargo for next month against four planned purchases. This was the second attempt in less than a month for buying LNG cargoes under spot deals.

For easing domestic shortage and meeting the demand of power sector, Pakistan LNG Ltd (PLL) earlier floated a tender for supply of four cargoes for the month of July. The LNG to be delivered under this tender will include each cargo having a volumetric quantity of 140,000m3.

As per schedule of delivery, LNG bids were invited to deliver natural gas by July 3, July 8, July 25 and July 30, 2022. However, the country's tender to buy four July cargoes received a single bid amid global fuel shortage and that too at a record high price. Only Qatar Energy offered LNG at record high price of nearly $40 per mmbtu.

In such a bleak scenario, the country's energy crisis is set to deteriorate as Russia-Ukraine standoff continues to drive the LNG prices record high following Europe's rush for stocking fuel in the absence of Russian gas.

Nowadays, Pakistan is grappling with widespread blackouts, partly due to a LNG shortages. On Thursday, Pakistan LNG Ltd (PLL) received a single bid from Qatar Energy at $39.80/mmbtu for July cargo.

Some circles called for rejecting the bid being too costly. They stressed the government should reject this bid as the cost of import will skyrocket if government entertains this cargo. The cost of the cargo if imported on the recent bid value will be whopping 120 million dollars. The government should opt for strict conservancy plan instead of buying costly cargo, they emphasised.

However, it is a dilemma for a country like Pakistan to reject even such a pricey LNG cargo. During the month of July, LNG demand for the power sector would be high as hydropower could not pick up due to river water shortage. For the last couple of months, sourcing LNG from international market has become an uphill task for Pakistan amid a surging spot market with highly squeezing supplies.

The import of LNG is unlikely to be as easy as it was due to spiralling Asian LNG spot prices that have nearly doubled this week to $40/mmbtu, primarily due to global supply crunch owing to the Russia-Ukraine war. It may be noted that Pakistan’s most expensive spot purchases earlier stood at around $30/mmbtu.

The crippling domestic power shortage necessitates import of natural gas for running thermal power plants. To meet this huge challenge, the government is struggling to secure enough LNG to generate electricity to avoid 10-12 hours of daily blackouts.

In such testing times, Pakistan has been facing immense difficulties in sourcing LNG from the spot market. The country early this month failed to receive even a single qualifying bid for two tenders, seeking a July 3-4 delivery LNG cargo. The problem not only relates to the spot market, but also to several of those cargoes (under long-term deals) that were withheld by the suppliers, further exacerbating dwindling fuel supplies.