LNG Bidding: The right way

Pakistan has been taking strides to improve the RLNG spot purchase process, and the last tender saw significant changes towards the goal. The previous process was time and again blamed and criticized for being too cumbersome and rigid, with painstakingly long tender closure dates, and out-of-date pricing structure linked with crude oil prices. That has changed for the better, and the immediate impact is there for everyone to see.

The latest LNG tender floated by the Pakistan LNG Limited saw much increased participation from bidders, with as much as 12 participants bidding for LNG supply for various windows between April to June. As much as eight participants bid for a June cargo, which is the most number of bidders for any cargo in the PLL tender history.

What is also important is the time from the tender issuance to closure, which has reduced drastically, and increases chances of fetching prices closer to the spot rates. The fixed rate bidding also lessens the crude oil hedge exposure of the suppliers, which at times has cost Pakistan big time both in terms of value and the actual supply of RLNG.

Comparisons with the long-term Qatar contract may start pouring in again as the delivered ex-ship (DES) LNG price for March and April is 7 percent and 25 percent expensive for the long-term contract versus the PLL imports. It must be noted that the very long-term Qatar contract came to the rescue for Pakistan in the peak demand winter season, where the DES price for PLL was an average 18 percent higher than PSO imports, for three months from December 2020 to February 2021.

As crude oil prices have rallied in the past two months, the DES price for PSO imports for April 2021 will sit around $8.16/mmbtu, which is the highest since March 2020. Landed price for May 2021 is expected to be even higher, as the trailing three-month Brent crude average is considered to work out with the slope, and a price around $8.8.7/mmbtu is on the cards for May 2021.

On the other hand, PLL cargoes till June 2021 have been arranged, and the DES price sits at a comfortable $6.7/mmbtu, which is very close to the spot rates observed in the Asian markets. The LNG global demand is also coming gradually back to pre-Covid levels. As per Bloomberg, March 2021 saw the highest increase in global LNG imports, as demand from Asian countries lead the way. Pakistan seems to have ironed out the LNG import procedure just in time.

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