As oil demand unwinds in the wake of falling global growth, natural gas/LNG markets continue to remain tight in this ongoing energy crisis. Pakistan too has imported its two most expensive LNG shipments in the months of May and June 2022. The country’s LNG import bill climbed up to US$762/US$724mn in May/June as compared to the Jan-April average of US$370mn/month.
Moreover, Pakistan LNG Limited (PLL) recently invited spot bids for July shipments after failing to procure them in the previous two weeks. The country’s one of only two LNG importers received a single bid to buy four cargoes for July at US$39.8/mmbtu, up 82% from last month’s spot purchases.
To note, PLL secured 4 cargoes at an average DES at US$21.8/mmbtu in June, which resulted in an average power generation fuel charge from RLNG of PKR27.9/kwh (up 178%YoY). If the LNG shipment for July 2022 is procured at the said rates, this may result in average fuel cost of PKR60/kwh from the source, a ballpark figure yet daunting. PLL is in this difficult position as its long term supply contracts are not being upheld by suppliers in Italy (ENI) and Qatar (Gunvor), amid the ongoing gas shortage in Europe.
Contractual defaults which have been ongoing for 6 months now are forcing the state-owned entity to procure LNG from the spot market at high prices ranging anywhere between US$12 to US$25 per mmbtu.
Procuring LNG haphazardly results in high volatile purchase costs, disruption in energy supply chain, and additional costs per mmbtu in case the LNG storage terminal/pipelines go unutilized (courtesy of take-or-pay agreements).
Iran-Pakistan relations
According to Tasnim News Agency, Iranian President Ebrahim Raisi expressed the country’s readiness to satisfy Pakistan’s demand for oil, gas and electricity.
In a meeting with Pakistani Foreign Minister Bilawal Bhutto Zardari, held in Tehran, Raisi hailed the close ties between the two neighbors, saying the people of Iran and Pakistan are like relatives.
“We consider Pakistan’s security to be our own security,” he said, adding, “Some do not like the good relations between the two Muslim, neighboring, friendly and brotherly nations, but the development of relations leads to economic prosperity and more security for the nations of the region.”
There are no restrictions in Tehran for the development of relations with Islamabad, Raisi noted, saying, “We are ready to promote comprehensive cooperation with Pakistan and the Islamic Republic of Iran has the necessary capacity to meet Pakistan’s needs in various fields, including oil, gas and electricity.”
The Iranian president called the fields of energy, transit and cooperation and coordination in the regional issues and crises as important aspects of relations between the two countries, his official website reported.
For his part, Bilawal expressed satisfaction with the visit to Iran, adding, “As much as I am a child of Pakistan, I am also a child of Iran.”
Thanking Iran for exporting electricity to Pakistan, the Foreign Minister said, “We are fully prepared to complete and conclude the previous talks in the fields of security, trade and energy.”
Pakistani Foreign Minister also praised the government of Iran for its assistance in extinguishing the widespread wildfires in Pakistan’s Balochistan province.