KARACHI: Pakistan is not planning to immediately resort to the liquefied natural gas (LNG) spot market to meet its energy needs despite a significant price dent in the global market of the super chilled fuel, with officials and experts saying “affordability of the fuel is a bigger problem than availability” for the cash-strapped South Asian nation.
Pakistan has yet to enter the LNG spot market after June 2022 following an unprecedented price hike and tight supplies in the international market in late 2021. In August 2022, LNG spot prices rose to a record high of $69.9 per million British thermal units (mmBtu) for Asia, after Russia invaded Ukraine and concerns about tight supplies to Europe rose.
The spot prices of LNG in the global market have significantly eased over the months and currently hover around $20 mmBtu. But despite the price dip, Pakistani officials said the country is unlikely to rush to the spot market.
“Pakistan has not procured any cargo since June 2022 and is currently not in a position to reenter the spot market [immediately], economic constraints [being] one of the key reasons,” an official of the state-owned Pakistan LNG Limited, a company mandated to import LNG, told Arab News, on the condition of anonymity.
The South Asian nation meets more than half of its LNG needs through long-term import contracts, while the gap is met through spot cargo purchases. Pakistan has long-term agreements with Cypriot oil company Gunvor and Italian energy firm ENI for the supply of one LNG cargo every month.
Last year, both suppliers refused to honor some of the contracts, declaring force majeure amid high prices and tight LNG supplies.
The cash-strapped South Asian country imported energy products, including LNG worth $9.28 billion between July and December last year. The import of LNG has posted a decline of 18.7 percent to $1.9 billion as compared to the same period of the previous year, according to the Pakistan Bureau of Statistics (PBS).
On Wednesday, ENI again declared force majeure and expressed its inability to deliver February's LNG cargo to Pakistan under the long-term contract.
Pakistan’s annual consumption of gas has increased to 4.1 billion cubic feet per day (BCFD), while local production remains at 3.37 BCFD, according to data compiled by the Petroleum Club of Pakistan.
Out of the spot LNG market due to skyrocketing prices and financial constraints at home, the South Asian is currently managing the peak winter demand through frequent load shedding of gas across the country.
“In a bid to secure enough gas to fill up its reserves, Europe outcompeted Asia in the spot market, and many countries, including Pakistan, were priced out as spot prices skyrocketed,” Haneea Isaad, an energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), a US-based think tank that examines issues related to energy markets, trends and policies, told Arab News.
“Pakistan was unable to procure any cargoes despite repeated attempts. Even term suppliers such as ENI and Gunvor defaulted on their supply agreements, leaving Pakistan in a lurch.”
The analyst added that owing to LNG inventory build-up in Europe and weakening demand in China and North Asia due to low economic activity and the lunar new year, LNG prices have taken a downward dive, dropping to almost $20 per mmBtu.
“Pakistan, however, is still not in a position to take advantage of this [situation] because of the worst economic crises the country has experienced in a while,” Issad said.
“It isn't surprising to see that PLL has floated no tenders to procure LNG on the spot market since August 2022, and even back then, it didn't receive any bids.”
Pakistan’s official foreign exchange reserves have declined to $3.67 billion, not even enough to provide a one-month cover for imports. The dollar liquidity crunch has forced the country to take import-restrictive measures that have resulted in piling up of import cargo, including industrial raw materials awaiting clearance at ports.
“For cash-strapped Pakistan, the affordability of fuel is a bigger problem than availability. Unless things get better for the country's economic front, LNG supplies will continue to remain a problem,” Isaad said.
LNG supplies to Pakistan will remain constrained on a short to medium-term basis as global markets remain tight on available volumes, she added.
Pakistan has sought to diversify its gas sourcing towards Russia, but analysts say that Russian supplies are tied up at present and may continue to remain so until the end of this year.
However, Islamabad and Moscow recently agreed to deal in discounted crude oil, gasoline, diesel and liquefied petroleum gas (LPG).
As Europe is preparing to slap Moscow with new sanctions and put a ban on refined petroleum products, the emerging situation is likely to benefit Pakistan.
Reuters on Friday reported that Independent Russian oil refiner Forteinvest has clinched a deal that will see 1,000 tons of Russian gasoline sent to Pakistan by land for the first time.
Analysts believe that Pakistan's LNG outlook for the future is linked with the global supply situation of LNG.
