LNG spot market cold-shoulders Pakistan
In a major setback to gas-starved consumers, Pakistan could not get even a single bid for three LNG (liquefied natural gas) cargoes meant for the first half of January and attracted the highest price for the second half of the month mainly because of delayed tenders amid rising international prices.
Pakistan LNG Limited (PLL) had issued tenders for six cargoes for delivery between Jan 8 and Feb 1. In response, no supplier or trader bid for the first three slots between Jan 8 and Jan 18. This is the first time that the country did not get a bid since it entered the spot market five years ago.
For the fourth January 20-21 window, only two bids were received with potentially unviable prices. The lowest bid of 17.32 per cent of Brent price for this slot came from a surprise first-time bidder, Qatar Gas, which is not in the spot market.
Qatar Gas also happened to be the only bidder for the fifth cargo for Jan 26-27 window and at the same price — 17.32pc of Brent. This is also for the first time that a lowest bid is more than 17pc, except the very first cargo that was purchased in 2015 for terminal testing.
The sixth and last cargo for Jan 29-Feb 1 received six bids and one was disqualified. The lowest bid of 15.32pc of Brent again came from Qatar Gas while all others were well above 20.48pc of Brent. One of the regular suppliers, Trafigura, offered the highest price of 33.94pc of Brent. These prices are again unprecedented.
Unfortunately, the LNG price above 17pc of Brent becomes unviable and costlier than high speed diesel, crude and furnace oil. This means power plants should be run on furnace oil instead of LNG and if the former is available at local refineries it also saves foreign exchange.
A part of LNG lined up through long-term Qatar Gas and similar older contracts will have to be diverted to the highly-subsidised residential sector. The price difference between imported and local gas thus works out at about $8 and $3.2 per mmbtu. The country will be facing at least 200mmcfd of LNG in the early part of January as Pakistan State Oil (PSO) had rejected similar bids recently.
Experts quoted three major reasons for poor response but noted a positive development in terms of direct producer and supplier Qatar Gas taking part in the bidding that would bode well for the future as traditional traders/suppliers would need to take into account the competition from a producer.
They said the delivery window of less than 45-60 days always carried a premium that happened with Pakistan. Also, an Australian project was closed which created supply shortages. Moreover, the launch of Covid-19 vaccine in major countries also jacked up LNG demand, thus increasing the prices of both LNG and oil. As if that was not enough, domestic controversies over LNG prices also kept some bidders away.
The only solution for the government now is to engage with Qatar at the highest level to fill up over 200mmcfd of gap in January. Otherwise, the existing supplies to the power sector would have to be diverted to domestic consumers to avoid widespread public outcry when opposition parties would already be on the roads.
Meanwhile, in a statement issued on Friday, the petroleum division said the wide range of prices offered for the same delivery date clearly showed that the time between the bid opening and the delivery date is not the price determinant; the main driver, it said, is global demand and supply.
“It is also to be noted that the cheapest cargo Pakistan ever bought at $2.23/mmbtu had only 39 days between bid opening and delivery, while previously the most expensive cargo bought at $10.27 had 71 days between bid opening and delivery,” the statement said.
Equitable tariff regime
Meanwhile, private sector stakeholders at a public hearing on Thursday demanded an equitable tariff regime for all companies, including from the public sector, to transport imported LNG through pipeline network. The hearing was conducted by the Oil and Gas Regulatory Authority (Ogra) for determination of transportation and distribution tariff for shippers/suppliers.
The government companies were lifting 1,200mmcfd LNG. The private sector representatives said the new transportation tariff regime should also be applicable across the board. They said the private sector should not be burdened by charging different transportation tariff. They also opposed the demands by gas utilities for imposition of penalty, capacity payment, etc. They said SNGPL wanted to charge capacity payment and tariff as well even if it denied pipeline capacity for any reason.
Chief executive officer of United Gas Development Company Ghayas Paracha lamented that gas companies were blocking imports by the private sector. He said UGDC had been struggling for four years to import gas but hurdles were created at every stage.
Mr Paracha said several foreign companies were willing to work in Pakistan’s LNG sector but UGDC’s sufferings discouraged them and compelled them to leave. He said there was no reason for professional charges claimed by SNGPL and feared that the funds so collected from third party would be used against them in legal disputes.
Shahid Sattar, representing the All Pakistan Textile Mills Association, also backed a call of giving a final decision on transportation tariff rather than provisional one. He said it would also be difficult for the textile sector to recover dues on products after they were exported. He said the textile industry was also interested in import of LNG as it required 350mmcfd gas to meet the requirement. Therefore, he said, the private sector should also be facilitated to import cheaper gas.
Saqib Aziz, representing Fatima Fertilizer, also raised a question over the tariff claimed by the gas utility and demanded that market be opened for the private sector.