New govt buys LNG at 40pc higher prices

Despite a large majority of cargoes imported at cheaper long term contracts, the basket price for imported Regasified Liquefied Natural Gas (RLNG) has surged 40 per cent to a record $22-24 per million British Thermal Unit (mmBtu) for May owing to a string of spot cargoes procured by the new coalition government in first month in office to meet energy shortages.

In a notification issued on Friday, the Oil and Gas Regulatory Authority (Ogra) worked average sale price for Lahore-based SNGPL at $21.83 per mmBtu for May, up 40pc from $15.616 per mmBtu in April.

Likewise, the average RLNG sale price for Karachi-based SSGCL was notified at $23.79 per mmBtu for May against $16.91 in April, showing an increase of about 41pc.

The overwhelming reason for the surge was four spot cargoes imported by the new government soon after coming into power to end rising power cuts across the country as the previous PTI-led coalition government shied importing spot cargoes and some long term suppliers defaulted amid skyrocketing global prices.

This is evident from the fact that delivered ex-ship (DES) price of LNG under long-term contracts between PSO and Qatar for eight cargoes in May averaged $13.15 per mmBtu while the average DES price for four spot cargos by Pakistan LNG Ltd (PLL) came in at $25.95 per mmBtu, showing a difference of more than 97pc.

These four cargoes were purchased at price range of $23 to $30 per mmBtu compared to only one spot cargo purchased by the previous government for April at $11.80 per mmBtu. The previous government had also purchased two spot cargoes at an average DES price of $25.12 per mmBtu for March.

As such, a total of 12 LNG cargoes of 3.2 million mmBtu each (a total of about 1,200m cubic feet per day) became available for May against just eight cargoes of 3.2m mmBtu each (or a total of just 800mmcfd) in April, leaving a shortfall of about 400mmcfd for power sector to rely on furnace oil or diesel.

The notification showed that even the average import price of $13.15 per mmBtu from Qatar for May was almost 8pc higher than $12.19 per mmBtu in April because of price slope linked to benchmark Brent Crude price.

Pakistan has two long-term contracts with Qatar, one involving six cargoes at 13.37pc of Brent signed by the previous PML-N governent and two cargoes contracted by PTI government at 10.2pc of Brent.

The average cost of six long-term contract cargoes of PSO-Qatar had stood at $5.78 per mmBtu in December 2020.

As per the Ogra notification a total of 12 cargoes are due in May, with eight cargoes coming from two long-term PSO contracts with Qatar and four are coming to PLL under long-term contracts.

The LNG importers — PSO and PLL — would be better off with even expensive imports because they earn windfall on account retainage and margins at the rate of 3.22pc and 3pc, respectively, which obviously goes up with higher import price. With this, it would be the first time that Pakistan will have a total of 12 cargoes in May including long term contracts with Qatar. This would mean that both LNG terminals would be operating at more than 85pc of their combined installed capacity.

Pakistan had been in the grip of power shortages ranging between 3-7 hours per day in the recent months as the previous government hesitated ordering spot LNG tenders while long-term suppliers defaulted on almost a dozen times in winters amid volatile international market.

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