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The relative calm in international energy commodity prices could not have been timed better for the likes of Pakistan. The energy commodity prices have come full circle. Pakistan’s largest import outside of petroleum products, LNG has shown signs of market equilibrium, that could last as long as the entire decade. Such is the supply glut that even an unprecedented rise in demand from India and China has not led to RLNG prices rallying beyond the narrow band in the post-winter season.

RLNG spot prices in the oft-quoted Japan-Korea Marker (JKM) market have inched up gradually, nearing a 4-month high at $12/bbl. Considering the highs seen last two years, $12/mmbtu may not seem too high, but tracking the trajectory for mid-year, the rise has been rather steady, defying all previous cyclical movements. For context, the June 2024 spot price is higher than the peak-demand days of January. In the past, barring anomalies such as the Ukraine-Russia war and Covid – prices usually reduce by a third by June, from the start of the year.

This does not mean there is an imminent risk of a mad price war starting anytime soon. Despite the demand side from Asia growing like never before, European buying has been far away from the frenzy of two years ago. On top of that, major producers have been inking long-term contracts, one after another, paving the way for better price discovery for the next two to three years, if not more.

The likes of Australia and Russia have announced ambitious expansion plans, indicative of strong demand growth projections. There is not a glut in the market as of now, but even a little stutter on the demand side carries the potential of sending the RLNG market back to the oversupply zone. Russia has been inching to regain its share via various routes, whereas Saudi Arabia is also reportedly gearing up to make inroads in the LNG market via Acramo.

Pakistan is no longer a dominant player in the LNG market, as other buyers have grown more rapidly in the last two years. That said, Pakistan’s government-to-government LNG contracts mean a contractual obligation to lift LNG is always there, and the slowdown in industrial and power sector demand has thrown a spanner in the works. Pakistan continues to divert LNG to domestic consumers in the peak consumption season without having implemented the Weighted Average Cost of Gas Act.

In the off-peak season, low demand from the industrial and power sector has of late led to line packing in the gas distribution system. At nearly $13/mmbtu distribution price, exclusive of GST, power generation remains a costly affair, especially in times of reduced demand, which sends the less-efficient RLNG-based plants down the pecking order. But the system constraints have meant Pakistan ends up using RLNG for power generation, as a failure would mean defaulting on contractual obligations – leading to never-ending episodes of monthly fuel adjustments.

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