Winters, gas shortfall, mad dash for imported gas. It keeps coming back every year and 2022 is not any different. The only respite has come in the form of a significantly reduced import bill of RLNG due to much-reduced availability in the spot market, and moderation in Brent oil prices. Pakistan’s failure to attract LNG cargoes from the spot market has been well-recorded, which has kept overall unit cost in control – although it comes at a cost of a significant shortfall.
Pakistan’s desperation is evident as the authorities have decided to revisit a once-forgotten government-to-government deal with Azerbaijan. There is not much to look forward to, other than a stressed cargo if and when available finding its way to Pakistan, without take or pay obligations, subject to affordability. It is a long shot. Recall that there has not been spot buying for quite some time – as the onus has fallen to long-term and medium-term contracts, all linked with the Brent slope, ranging from 10.2 to 13.37 percent of Brent crude oil.
The South Asian buyers have been left high and dry this season, more than the previous ones, as Europe and Far East markets have taken precedence. A number of LNG vessels were seen waiting for their turns to offload around European shores, as the price was too lucrative to look elsewhere. As Chinese demand is slated to return to near normal sooner than earlier anticipate, expect the spot market to remain tight in the near future. There simply is not that much LNG available given the existing global infrastructure for Pakistan to realistically hope of inking any sizeable long-term deal in the next three to five years. The failure to attract a single bid for 60 cargoes over five years is still fresh in memory.
On the pricing front, the ex-GST distribution price for RLNG consumers in the last two months has stayed a little over $14/MMBtu. That is significantly lower than the rates seen till a few months ago. PSO’s contracts priced at a 10.2 percent slope of Brent have had a sizeable share, keeping the weighted average prices in check.
The government has continued to refrain from rationalizing consumer gas prices, inviting the IMF’s displeasure. More committees have been formed to look at gas circular debt and the way forward, which seems an exercise in futility. The solution is straightforward. Imported gas needs to be priced at the cost. The domestic consumer continues to be charged an average of $3.5/MMBtu. Nobody is footing the bill as unpaid subsidies keep rising.
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