RLNG- more reliance means more imports

RLNG based power generation is quickly taking up furnace oil’s place in not only diversifying the energy mix but by also adding a cleaner flavor to it. In this backdrop, furnace oil imports – a significant part of the petroleum imports – came down drastically in the last year to almost nil imports this year (though imports have resumed partially addressing the summer peak demand).

Though the import bill has seen a respite as a result, it might not remain like that in the coming years or even months. Increased demand at home means higher imports even though the government is setting up a committee to assess the import mechanism for RLNG. The growing reliance on regasified liquefied natural gas (RLNG) that is being imported from supplier like Qatargas, Gunvor Group and the Eni Group, is to increase the imports, which will push up the import bill. The impact might not be as drastic as it was with furnace oil, but along with coal imports and other petroleum imports, it sure will be noticeable. Globally too, the demand for LNG is increasing and is expected to continue growing as importing countries – mostly the emerging economies - move towards cleaner fuel sources. At the same time, global supply is also expected to moving up as new projects keep coming online to address the rising demand.

However, right now the supply seems to have taken over the market dynamics, which is keeping LNG spot prices at historic lows these days – three years to be specific. Despite rising demand advantages to price, lower US gas prices because of record production are likely to keep a lid on LNG prices going forward. LNG spot prices have slipped recently due to surging supply of the LNG from exporting countries. In such global market dynamics, some suppliers and exporters are expecting to sell LNG to Asian importing market at a spot price of $7-9 per mmbtu in the coming months. Asian LNG spot prices for delivery in July and August 2019 hover between $4-6 per mmbtu.

This price scenario has once again started the LNG pricing discussion at home. Where some experts are of the opinion that Pakistan should benefit from low spot prices by securing more contracts on spot basis, some are also of the view that short and long term LNG contracts offer better discount to contracts on spot basis due to the fickle nature of the crude oil prices – the only benchmark for natural gas pricing globally. Pakistan is currently importing from Qatargas, Gunvor Group and Eni at 13.37 percent, 11.6 percent, and 12.29 percent of Brent crude oil price respectively – much higher than the spot prices today.

RLNG is only going to increase in Pakistan’s fuel mix as indigenous gas reserves continue to deplete and shale gas exploitation and off shore drilling continue to fail due to high cost and repeated failed attempts. This means that a look into RLNG pricing sooner than later is needed to secure the much needed fuel source at prices that aren’t too burdening on the current account that is already up for a tougher time ahead.