The general impression in the media is that the previous government was running LNG-related issues non-seriously or incompetently. Without debating the performance of the previous government, the incumbents are running it like a circus. The focus of the government is to buy unaffordable LNG and provide it at fraction of the cost to the consumers. There is neither fiscal space nor external cushion to do so.
The government bought nine cargos for May and June at roughly $900million or at an average of $28/MMbtu. How much has the country been able to recover? According to some estimates, the subsidies for these nine cargos were north of $500million, which means we have depleted our foreign reserves at Shehbaz speed.
Now they are tendering for ten cargos for July to September. Current prices are hovering around $36-40/Mmbtu, which means a single cargo will cost around $120 million and ten would cost around $1.2billion. Does the country even have the fiscal and external space for such adventures? Then there are implicationsfor gas and power circular debt.
On top of this, the government is mulling the options to fill the gaps through virtual LNG. The PMvisited Gwadar to support a Virtual LNG project and the PMLN petroleum team is all lobbying for it. They don’t realize that Virtual LNG is based on a break bulk model where LNG for Virtual is supplied from the country itself. Do we even have the LNG? Plus, the additional costs of Virtual LNG will be at least 150 percentof the LNG price. Who can afford this price?
At the same time, Qatar is upset with the government. It’s been over 3 months that the new government is in power and yet the issues of investment (in these economic times) are not resolved. It had to be the Qataris who asked the government themselves again when it should have been the government welcoming their investment. Qataris are thinking that Pakistan does not appreciate the investment and rather wants discounts or free money.
The LNG new terminals are in waiting for approvals where one terminal has the backing of Qatar Energy. However, the government is spending its energies on less productive items like Virtual LNG or expansions of the existing vulnerable LNG supply chain. Had Pakistan had three terminals today with five cargos on long term each, the crisis would have been of much less magnitude. And still, the government is not doing anything about it.
Then the focus rather should be on rationing gas and prioritizing sectors where long-term gas supply should be diverted. The government should work on demand destruction in areas of low gas efficiency. The government should get prepared for winters by announcing today that LNG would not be available for domestic and should incentivize the use of power (electricity) for space heating in winters. Unfortunately, there is no focus on these key areas. Rather it looks like the government is spending precious and expensive molecules at throwaway prices to buy votes.
It seems the government is caught in a dilemma of a mind freeze -it's focusing on deliverables of the past when international gas supply had outstripped demand. It's high time to wake up -international supply is nonexistent and prices are economically poisonous.Times has changed and strategies are needed to be adjusted.