Pakistan Fails to Secure LNG from Spot Market as Winter Approaches

Web DeskJune 21, 20234886 min

ISLAMABAD: In its first attempt after a year-long break, Pakistan has been unable to secure liquefied natural gas (LNG) from the spot market as it received no bids for six shipments scheduled for the upcoming winter months.

Pakistan LNG Ltd (PLL), a state-run company, recently floated short-term tenders for three cargoes each in October and December. However, PLL announced on Tuesday that it did not receive any bids for any of the delivery windows by the closing time at 12:30 pm.

LNG supplies in the spot market have eased in recent months, resulting in significant price drops. This prompted PLL to explore the spot market for its winter energy gas shortage.

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However, experts dealing with energy supplies believe that Pakistan’s strained relations with the International Monetary Fund (IMF) and its adverse credit rating, coupled with foreign exchange limitations, deterred LNG traders from participating. The country has been struggling to obtain letters of credit for necessary imports.

PLL also issued a separate tender last week for three more cargoes, scheduled for January and February, with a bid deadline set for July 14. This tender will also test the viability of the government-to-government supply contract signed with Azerbaijan’s state-run Socar, as there will be no comparable spot market bids to determine the reasonability of the bilateral price.

Previously, PLL used to import up to three cargoes a month through spot tendering to meet seasonal demands. However, since June last year, the company has faced difficulties in securing even a single cargo as tenders failed to attract any bidders. The prices in earlier bids were unaffordable and exceeded the country’s foreign exchange resources.

As a consequence, the government had to increase electricity load shedding, ration gas supplies, and withdraw subsidies from the export sector.

After a gap of over a year, PLL once again floated international tenders for nine cargoes, scheduled for delivery between October 2023 and February 2024. This period coincides with low hydropower generation and increased gas demand from residential consumers during winter. The upcoming deliveries will test the viability of the PLL-Socar relationship during these challenging times.

Although Socar had previously bid for LNG cargoes to Pakistan, it was unsuccessful due to its higher prices. However, the two nations have been pursuing cooperation in the oil and gas trade for almost a decade. They signed an inter-governmental agreement in February 2017 to enhance energy cooperation.

Currently, Pakistan relies on seven LNG cargoes per month from Qatar through Pakistan State Oil under long-term contracts and one cargo per month through PLL’s 15-year contract with the Italian multinational energy company Eni, which has defaulted on supplies on a few occasions.

The average regasified LNG basket prices at the distribution stage have nearly halved to $12 per million British thermal units (mmBtu) for June, compared to $23-24 in May last year. The decline occurred when the previous government, Pakistan Democratic Movement (PDM), secured spot cargoes to address energy shortages shortly after taking office.

Since then, repeated efforts to import more gas through spot tenders have failed due to tight supply conditions and record-high prices in the international market following the Russian-Ukraine war.

Pakistan has long-term contracts in place for eight to ten monthly cargoes, mostly with Qatar, with one from another supplier.

Under the one-year contract (extendable) with the state-run Socar of Azerbaijan, the company will offer one LNG cargo per month 45 days before the start of the relevant delivery window. PLL will have a set validity period to accept or reject the offer, and the LNG price will be quoted by Socar to PLL in US dollars per mmBtu for each standard cargo of

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