Pakistan is still four months away from the start of peak gas demand season, but how things have shaped up so far gives a fair idea what is in story for the citizens – yet again. While the LNG spot prices as tracked by Platts LNG Japan Korea Marker, has steadied over the past six weeks, after a sharp 20 percent surge in two trading sessions–early signs of heating up have emerged in the trading market.
The spot prices have so far not entered the bullish zone, as per technical chartists observing the movements. That said, more and more Asian buyers are entering the market and vessel movement has picked pace in the last two weeks in Asia. In addition to the traditional big buyers, smaller new players in the South East Asian market have added a new dimension to the dynamics, that could well determine who gets how much LNG come winters.
Europe’s mad rush to pile up inventories last year is well documented, but the inventory levels are gradually coming down. Severity of winter temperatures will be a big determinant, but if Asian buyers continue to show decent demand growth, that alone could send prices soaring. More and more buyers with deeper pockets are inking long-term contracts with the likes of Qatar and Australia. The supply addition in the short-run is next to nothing, and if the world suddenly needs more LNG like it did last year – prices are up for another shock.
Even if European buyers do not line up like last year, even normal demand growth would mean a price war – that could be the difference between who gets it first. For the vessels to be diverted from Asian markets to Europe again, significant premium is now an established practice. If smaller Asian buyers continue to show interest, this could make European buyers offer more for LNG. Cancellations of promised shipments, last minute diversions and defaults on contractual supplies – could make a return.
Pakistan, meanwhile, continues to struggle even without the spot or future market going into a frenzy. Spot purchases have evaded Pakistan for a while now, and the Pakistan LNG Limited’s (PLL) bid to attract vessels for January and February of 2024 attracted only two bids –at around $23/mmbtu – way higher than spot rates. Reports suggest that the authorities have decided not to go ahead with the purchase –given the paucity of dollars and general unaffordability at these rates (although Pakistan committed and paid for LNG at much higher rates last year).
Recall that the previous tender for six cargoes in October, November, and December – did not receive a single bid. Pakistan will have to rely on contractual supplies, which promise to be pricier as Brent crude has raised to multi-month high – and the slope indexation would mean higher prices.