Pakistan’s reliance on imported gas taking heavy toll on economy

Javed Mirza Web Editor

29th Sep, 2021. 02:29 pm
LNG

KARACHI: With campaigning for the upcoming elections kicking off, upward movement of liquefied natural gas (LNG) prices pose a challenge for the Imran Khan government, which failed to calculate the local, as well as international gas demand, amid the post-Covid recovery, and ignored the hedging of fuel supplies.

Khurram Shehzad, CEO of Alpha Beta Core, said that the government was caught between a rock and a hard place. “[The] energy demand cannot be suppressed, as it would adversely impact [the] production and growth, while procurement of expensive gas will influence the deficit.”

Shehzad said that gas had a significant weight in the inflation basket.

“If the higher prices are passed on to [the] consumers (both industrial and domestic), it would push up inflation and, if not, the circular debt would multiply.”

He blamed poor planning for these challenges.

“There has been no advance planning, and the government relied on ad hoc procurement, which has risks.”

Pakistan started importing LNG about six years ago, but this import addiction has been draining the country’s resources to a point that Pakistan LNG Limited (PLL) and the Pakistan State Oil (PSO) had to scrap import tenders because of higher bids.

“The shortfall means the nation will ‘definitely’ suffer power outages over the winter. It will hit exports, industry and general morale more than anything else,” Al Jazeera quoted Iqbal Z Ahmed, chairman of the Pakistan GasPort, which owns and operates one of the import terminals.

Earlier, Minister of Energy Hammad Azhar had said that Pakistan’s gas reserves were depleting at an alarming rate of 9 per cent/annum, while the energy needs and the size of the population were growing.

“To bridge the gap, we import LNG from abroad, but there are two major issues with that practice. Firstly, we have no LNG storages, and; therefore, the cargoes must be perfectly timed. That is the reason the current supply chain has no flexibility.”

The Asian spot liquefied natural gas (LNG) prices are set to spike further this winter and may break previous records set in last winter, as inventory levels remain low and producers are yet to ramp up supply.

The spot LNG prices hit around $29/mmbtu on Monday, and are expected to remain well above $25/mmbtu this winter.

Pakistan has stepped up its oil and gas imports this year from the last year, as the demand from its power sector increases, amid more economic activities, as coronavirus-induced restrictions are lifted. Any significant increase in imports typically pushes up the prices for these fuels.

Overall, the LNG imports rose 23 per cent to around 5.3 million tonnes through August this year, compared with the same period last year.

Even though the LNG prices are higher, the uncertainty in local production and demand from the fertiliser sector would mean Pakistan needs to import it. The Asian spot LNG prices (LNG-AS) are currently at their highest since January and also at their highest for this time of the year since 2010.

Shahrukh Saleem at AKD Securities said that with the increased pace of vaccination programmes, economic activity around the globe was increasing and the same is expected to keep the energy demand high.

“Moving forward, an additional trigger is expected to arise, as we move into winter where shortage of natural gas has resulted in economies shifting towards coal and oil-based power generation. Even though supply from Opec+ is expected to increase, in [the] near-term, the expected increase in the supply is unlikely to counter the strong demand.”

Pakistan does get more than half of its LNG under long-term contracts, which provides some protection against the volatile spot market. Further, Qatar has agreed to increase supply under those term deals.

The PSO recently scrapped the LNG spot tender for October 22 to 23, 2021 and replaced it with a cargo under the long-term contract from Qatar Gas using contractual provisions and prudent rescheduling.

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