LNG: Prices stabilize

LNG continues to be a much sought-after commodity. The race to procure more and more vessels come winters will get hotter, as the West grapples with energy shortages. Much of the West has announced or is planning to ration energy this season. That said, the West will also be the first to ensure as much as availability as possible. For some countries like Pakistan, the luxury is not there. The balance between affordability and availability continues to be delicate, and at the moment, saving every penny possible on imports is the adopted approach.

The regulator has announced provisional consumer price for September 2022 – which is virtually same as August 2022. Nine cargoes are expected to have been arranged for the month, which is one better than last month, but lower by 18 percent year-on-year. The story remains unchanged, as long-term agreements come handy in times of global supply crunch.

This is not to say that the situation can’t or won’t change between November-February. Cancellations of cargoes even those under long-term arrangements are now a global phenomenon. Of late, the onus of supply has predominantly been on the state-owned PSO. Six cargoes under the 15-year agreement with Qatar at Brent slope of 13.37 percent have been priced in for September. It helps that the three-month average Brent crude price has fallen from $111/bbl last month to $106/bbl now. Expect even lower Brent average for next month, as June’s price will make its way out – which could result in another 6-8 percent lower Brent used for October slope.

Two additional cargoes have been priced at under 10.2 percent of Brent slope – taking PSO’s average Delivered-Ex-Ship RLNG price at $13.47/mmbtu – only marginally higher month-on-month. Recall that August 2022 had three cargoes with 10.2 percent slope, which took the average DES price lower, despite higher Brent average for the reference period.

A solitary cargo by the Pakistan LNG Limited has been priced in the provisional price for September 2022 – at 12.14 percent of Brent slope. Getting bids from the spot markets will remain a herculean task from hereon. Recall that Pakistan has floated a tender for another long-term arrangement of one additional cargo a month for the next six years.

The government is believed to have formulated RLNG sector allocation for winters, under which domestic consumers will remain top priority. Power sector will take a backseat, and fertilizer usually plans the maintenance around peal winters to mitigate the impact. Gas price revision should be around the corner, and concerns over the gas circular debt getting out of control may be exaggerated at this point – as the authorities have principally agreed to revise consumer prices upwards by more than what is prescribed.