LNG imports set to hit 18-month high

With sharp price fall, Pakistan buys spot cargoes for first time in one year

KARACHI:

Pakistan’s liquefied natural gas (LNG) imports are all set to surge to an 18-month high with 11 cargoes arriving in December this year as the country has placed orders for two spot cargoes for the first time in the past one year.

A substantial fall in LNG prices from their peak in the international spot market and with the advent of winter when demand from household consumers spikes prompt the country to return to the spot market.

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However, prices in the ready market are relatively higher than the rates at which Pakistan purchases LNG from global suppliers under long-term agreements spanning 10 to 15 years. Talking to The Express Tribune, Arif Habib Limited Head of Research Tahir Abbas said Pakistan had bought two LNG cargoes at prices slightly below the average of $16 per million British thermal units (mmBtu), which would be delivered in December 2023.

In addition to these, two gas marketing companies – Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL) – have bought nine cargoes at an average price of $10.67 per mmBtu from QatarEnergy LNG (formerly Qatargas) and Gunvor under long-term deals.

“The purchase of two cargoes from the spot market has pushed LNG imports to 18-month highs,” Abbas revealed, adding that Pakistan had been buying on average 8 to 10 cargoes per month over the past 17 months.

For the past many months, Pakistan has stayed away from the spot market since the LNG price peaked at around $40 per mmBtu in the winter of 2022 and managed local supplies through load management.

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Most of the imported LNG is expected to be supplied to household consumers to enable them to use heaters and geysers to remain warm in freezing temperatures in chilly regions like Balochistan.

However, many businesses remain reluctant to consume the imported gas because of its exorbitant cost compared to the locally produced natural gas, which is going scarce day by day. The two public gas utilities namely Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) are selling indigenous gas to industries at prices ranging from Rs2,100 to Rs3,600 per mmBtu, according to the revised prices for November 2023 notified by the Oil and Gas Regulatory Authority (Ogra).

“Imported gas costs range from Rs3,500 to Rs4,000 per mmBtu,” said Ogra Chairman Masroor Khan at a public hearing earlier this week.

He stressed that the nation needed to accept LNG as a reality, sooner rather than later, as local gas reserves were depleting consistently. On average, Pakistan’s gas reserves are falling 9% per annum.

Abbas said an average of 3,200 million cubic feet of gas per day (mmcfd) was being produced from local fields. Besides, import of 11 cargoes in December will make available around 1,100 mmcfd in the month.

A total of 4,300 mmcfd will be supplied to consumers in December, but it is way short of the estimated requirement of 6,500 mmcfd.

Gas utilities will manage the deficit through outages in the comparatively lesser cold regions, for different industries and low demand from power plants.

These utilities supply a blend of local and imported gas at different ratios to the industries, which demand maximum supply of cheaper local gas instead of the expensive LNG.

Ogra has notified the re-gasified LNG price at $14.81 per mmBtu for SNGPL for December 2023, which is 9.8% higher than the price for November. For SSGC, it has notified the RLNG price at $15.45 per mmBtu, up 10.11% than the previous month.

Abbas pointed out that a reason for the higher RLNG price for SSGC as compared to SNGPL was the line losses – called unaccounted for gas (UFG). For the latter, the UFG stands higher at 14.9% compared to 8.8% for the former.

To reduce reliance on the imported gas, local oil and gas exploration companies are required to be encouraged to ramp up search for new deposits.

Published in The Express Tribune, December 24^th, 2023.

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