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The Asian JKM LNG spot price for February delivery reached $32.95/mmbtu last week, highest ever, and 16-folds to the lows seen in May 2020. You need not look beyond the LNG market volatility to know that these sure are unprecedented times. In the midst of the madness, an LNG supplier that bid for a cargo delivery for the second week of February 2021, defaulted on its commitment – leaving Pakistan with one less cargo than it had originally planned.

For context, Brent at the current rate is equivalent to $10/mmbtu. The fact that Asian LNG buyers are still yearning for more LNG even at exorbitant spot rates north of $20/mmbtu tells the panic-like situation, as demand has far exceeded supply. To make matters worse, supply curtailments could not have come at a worse time, as large Australian and Malaysian LNG producers reported supply issues.

Strong demand recovery from China has ensured the bulls are not in a hurry go to away – helped with 50-year low temperatures reported in Japan and Korea. Such is the madness that LNG shipping rates have increased from an average of $70,000-80,000 per day to $250,000-300,000 per day.

Extreme cold weather has also created issues in port handling, local supply disruptions and movement of ships from the Panama Canal. Of course, the prices will cool off once the temperatures rise, but maybe not very soon. BP has offered an LNG cargo for late February delivery at $20.65/mmbtu. While this is considerably lower than the recent highs – it is still exorbitant.

Brent-linked term LNG prices are considerably lower than spot prices, hovering around $8-9/mmbtu. Pakistan, meanwhile, can only sit back and hope for the madness to come to a halt. While Pakistan has gradually become one of the bigger LNG buyers, it is still some way off from being one that could move the market dynamics to a great extent.

Although, the Pakistan LNG Limited (PLL) is exploring alternatives to make up for the lost cargo, it seems highly unlikely that the demand from private sector will be there at such rates. It must be noted that upon default from the lowest bidder that bid at 23.43 percent of Brent – PLL approached the other two bidders that had placed bids at 25.56 and 32.48 percent of Brent – both of whom regretted to deliver the cargoes at the prices offered earlier in the bidding round.

February is a low demand month as compared to December and January, but it is safe to say there will be gas shortage in February with just one spot cargo confirmed. Pakistan, on an average has imported 8 cargoes in February over the last three years. Experts are of the considered opinion that the gas market which was once known for its stability may never be the same again, even though prices will surely come down in the next few months. This should be a cue for countries such as Pakistan to look for more term supply options, in order to avoid such events, come next winters.

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