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Energy markets have baffled observers like never before. While crude oil keeps finding a way to hold on, gas prices have taken an entirely different route. The two commodities have a history of well-oiled movement, with gas prices generally following the broader trends in the oil market. That seems to be over, at least for now. Europe has just registered eighth straight weekly loss in gas prices – which is a first in 15 years.

The LNG market is now believed to be officially in a glut, after a mild winter, and substantially reduced industrial demand from European buyers. China has only recently returned to near full throttle, but the loss from European industrial buyers is too big to keep LNG prices elevated. The LNG storages in Europe are brimming near full capacities.

The real test will be around August-September when most European buyers line up for heavy buying. Much will depend on winter temperatures, as industrial rebound is expected to take longer than earlier expected. Surely, the prices will not remain in single digits as the spot market heats up around that time, but new countries are taking advantage of the current situation, with a few just landing their first ever LNG shipments. This could bring balance to the market, that is otherwise believed to be oversupplied, unless China throws a major surprise in what has so far been a rather lackluster return in the post zero-Covid policy.

In the longer run, the LNG market is shaping up to be a buyers’ market. It was not long ago that buyers were running pillar to post to ink long-term contracts to ensure supply, as spot rates crossed $70/mmbtu and cancellations became a norm. In a 180-degree shift, top LNG sellers are now struggling to sell planned expansion. Qatar will be doubling its production capacity in the next two years, and unlike yesteryears could end up with no more than 25-30 percent of its capacity committed to be sold on contract basis.

Qatar, soon to be world’s largest LNG producer, aims to lock long-term deals by the end of 2023 – whereas the increased production will not be online before end of 2026. Buyers are looking for LNG now and not necessarily three years down the line, with climate goals in place, especially in Europe. That is why nobody is rushing to sign with Qatar, mostly because of stringent destination clauses in place that restrict reselling of LNG for well over a decade, limiting the buyers’ flexibility to maneuver.

Unless Qatar manages to secure the most ambitious long-term deals in LNG history soon, there will be an enormous amount of LNG in the spot market. For Pakistan, already part of multiple long-term contracts, it is best to sit back and watch how it pans out to strike a balance between contracted and spot supply. Given the LNG market supply is expected to rise by at least a fourth, it would not hurt to follow more prominent buyers instead of entering any strict long-term deal that could backfire in the future.

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