LNG: Going long-term

July 2022 offered a much-needed breather as Pakistan’s LNG imports halved from a month ago at c. $350 million. Recall that LNG imports for both May and June 2022 crossed $750 million, as the government opted to import spot cargoes at record high prices. There was not much on offer for July 2022 as the authorities failed to receive a single bid for spot cargoes.

Eight cargoes imported in July 2022 were all under the long-term arrangements by the state-owned Pakistan State Oil. The LNG cost for July 2022 averaged $17.4/mmbtu and $17.7/mmbtu for SSGC and SNGPL consumers, respectively, excluding standard GST rate of 17 percent. All 12 cargoes have been secured at the long-term contract arrangements with Qatar, of which five are priced at a slope of 13.3 percent of Brent, and three at 10.2 percent.

Brent averaged $111.5/bbl for the reference period for July 2022 slope calculation – which is based on average Brent prices of three preceding months. This was the highest Brent average since Pakistan started to import LNG from Qatar under the long-term agreement with Slope at 13.37 percent. The Delivered-Ex-Shipp (DES) import cost at $13.65/mmbtu is lower than last month despite higher Brent slope, due to an additional cargo at the reduced slope of 10.2 percent.

This space had highlighted last month that Pakistan’s July LNG import bill may be substantially reduced, largely due to inability to procure cargoes from the spot market. Two consecutive tenders were scrapped as no bidder qualified for July delivery. Peak electricity consumption months of August and September will require more imported gas to keep up with the demand.

But the previous tender had no takers, as bids for July and August, amounting to eight cargoes received no interest from the spot market. Nothing suggests that the situation is easing anytime soon, as Europe braces for load shedding of power for winters, despite more and more LNG vessels moving towards the continent.

Long-term contracts appear a safer bet, although there are no guarantees of ensured supply. Sensing the same, the government has opened bids for five to six years of long-term supply arrangement, for one monthly cargo – for two delivery periods. The tender outlines the pricing mechanism of the Brent linked slope. It will be near impossible to fetch deals as good as 13.3 percent of 10.2 percent on long-term contracts today but will nonetheless add to supply security in uncertain times.