From the entire Europe lining up to secure every possible LNG vessel and store as much as possible a few months ago – the LNG market dynamics have come a full circle. Having climbed up to near $70/mmbtu in late August 2022 – LNG Japan-Korea Marker (JKM) benchmark future contract prices have come down to near $12/mmbtu. April 2023 has so far seen average prices dip by 8 percent from a month ago.
Europe seems to have the stomachs full as the demand center gradually shifts back to Asia. Recall that Asian buyers have historically been the dominant force in LNG markets, before the harsh winters of 2021 compelled Europe to engage in anticipatory buying – driving out key Asian buyers. China’s remarkably strong start to the path of recovery means the top spot is regained – with Japan and Korea steady as always.
The likes of India, Pakistan, and Bangladesh having been nearly shut out, especially from the spot market, now stand a chance to take advantage of low prices. Exports to India have already picked up, but Pakistan may not be able to take full advantage yet. Dollars continue to be short supply in Pakistan – evident from much reduced LNG imports even in the peak winter demand season – at average Delivered-Ex-Ship prices of average $10/mmbtu since the start of 2023.
Long-term contracts have been the saving grace for Pakistan, without which Pakistan would have struggled to even afford or arrange a single cargo when prices shot up beyond $30/mmbtu. Pakistan’s last spot cargo arrived way back in June 2022 – after which there have been frequent cancellations and no-bids for months. Last two months have seen smaller cargoes of half the usual size imported by Pakistan LNG Limited under long-term deals of Brent slope at 12.14 percent.
Brent oil has inched up once again and could take the landed price slightly higher for the next two months – but it will still largely be under control. Pakistan has slipped down in terms of relevance for LNG market – as bigger buyers have of late inked several long-term contracts, leaving little free LNG available for the next three to four years. The spot market will continue to favor the richer countries that can afford to pay hefty premiums – which will continue to corner Pakistan.
As summer arrives, the electricity system will need 12-13 monthly cargoes to satiate the plants’ demand at full throttle. That is unlikely to happen and more inefficiencies in the generation chain are just around the corner – as economic order of dispatch will continue to be violated, there will be higher incidence of load shedding, fuel adjustments will be higher as more expensive fuel will be used to compensate for LNG. To think that it has not even been a year when the previous government was being lambasted for not putting an additional LNG terminal in its tenure. Pakistan’s LNG story may already have climaxed.