Costliest ever LNG

The import cost of 12 RLNG cargoes scheduled for May 2022 has been worked at $746 million. This is not even the highest number of cargoes Pakistan has arranged for any given month. The import cost at nearly $20 per mmbtu is easily the highest-ever. It is double the import cost incurred in the same period last year, despite one additional cargo back then. This is how crazy things have shaped in the energy market.

Eight of the 12 cargoes have been secured the long-term contract arrangements with Qatar, of which six are priced at a slope of 13.3 percent of Brent, and two at 10.2 percent. Only that Brent in the international market has only got pricier in the last two months. The RLNG Delivered Ex-Ship (DES) price at the last three-month average Brent price of $104/bbl comes at $13.15/mmbtu, for the eight cargoes under the long-term arrangement. This is easily the highest DES price for long-term cargoes for any given month, since Pakistan started importing LNG.

Then come the spot cargoes. Given how frenzied the international LNG market has been, since the Russia-Ukraine war, it is no surprise the DES price for spot cargoes at $26/mmbtu also beats all previous records. Recall that the DES price for March 2022 spots cargo had also touched $25/mmbtu. In that context, $26/mmbtu does not sound that bad. Only that, Pakistan opted to secure one spot cargo back in March 2022 versus four for May 2022.

The newly formed government was stuck between managing load or ensuring adequate supply for power generation at all costs. It chose the latter. This ensures the more efficient RLNG based power plants will run at a better load factor than previous months, taking some pressure off FO based generation. The weighted average distribution cost for SSGC consumers inclusive of GST comes to a staggering $28/mmbtu.

Recall that the import cost of spot cargoes for May 2022 is $28.7/mmbtu. But that for PSO’s is much lower $14.8/mmbtu. Such are the losses and cost involved at the distribution stage, that what at $28.7/mmbtu is the import cost for four spot cargoes, nearly becomes the final selling price for SSGC consumers at $27.8/mmbtu. The loss percentage for SSGC is as high as 17.85 – which means two of the 12 cargoes imported, never reach the consumers, but have to be priced in.

More of the same is in store for the months to come, as Brent three-month trailing average would be even higher for June 2022. There is not much respite in the spot market either. Get ready for record high LNG import bill and record high power generation costs.