ISLAMABAD: Amid unprecedented skyrocketing global LNG prices, no bidder responded to Pakistan LNG Ltd (PLL)’s tender for eight cargo deliveries in peak winter — four each in December and January — leaving a shortfall of about 400 million cubic feet each month.
This puts the government in a politically delicate situation as to how to ensure sufficient gas pressures in the pipeline or convince residential consumers to increasingly use electricity for water and space heating in peak winter months to minimise crisis situation. Normally gas consumption in domestic sector goes up from about 350mmcfd to 900mmcfd in peak winter.
Authorities, however, said early operationalisation of second-term contract with Qatar for additional LNG would partially bridge the gap. The remaining gap could be addressed through demand management by shifting consumers to surplus power at relatively cheaper winter tariff instead of creating additional bad debt in the gas sector by importing over $20 per unit gas and selling it with $4 per unit domestic rate.
The PLL had floated tenders for 8 LNG cargoes — four in December and four in January — to meet peak gas demand, mostly in the SNGPL network — Punjab and Khyber Pakhtunkhwa — with Oct 11 deadline. In response, not a single bidder turned up as the tender envisaged price validity period of 15 days — practically impossible for traders to hang on in unprecedented volatile LNG market. The LNG prices started to climb up over $20 per unit to go beyond $50 in some case before coming down to around $30 per unit in November-December period.
Gas for industry, power generation
An official told Dawn that Prime Minister Imran Khan had been briefed that diversion of expensive imported gas to residential consumers for water and space heating was unviable in terms of financials of the gas companies and the government’s budget position. He has been told that whatever gas (local or imported) could become available should be dedicated for power generation and industry including to some extent for fertiliser sector.
In fact, the power generation on LNG was now costlier than furnace oil and hence arrangements be put in place for additional furnace oil supplies — both from domestic and imports.
CNG sector appeared to be the only sector to completely lose out along with residential and commercial sectors to some extent. Energy Minister Hammad Azhar said he had a review meeting on overall gas supplies with LNG suppliers PSO and PLL and noted that there would be no big challenge. “We will have 10 LNG cargoes each in November and December unlike 11 in December last year. This is not a big difference,” he said, leaving lower availability of about 100 million cubic feet in December.
This, he said, was because of early beginning of second-term contract from Qatar with minimal impact of unavailability of spot cargoes. Responding to a question, he said 8-9 cargoes are already booked for January. He said the good thing was that weighted average of all LNG supplies in November through January would remain within our range of $12-13 and we would be able to meet the demand in the power sector and keep the industry running. “This is not a big difference despite international prices going up 500pc to $50-56 per unit”, he said.
The minister said he sought some additional data along with financials to see if or how much expensive gas could be allowed to be diverted to the residential sector. He said there would be regular weekly meetings on supplies and financial aspects of the fuel to reach a final decision on a viable basis.
Expensive LNG unviable
A senior official said the review suggested that 10 LNG cargoes are available in November and nine each in December and January. He said the PSO’s portfolio of LNG cargoes was full but PLL would not go for re-tender for December-January because it was extremely unviable to let LNG flowing to subsidised homes.
Out of a total supply of about 4,000 million cubic feet per day, about 2,800mmcfd is domestic gas at an average of $4 per unit while remaining 1,200mmcfd is imported. “Our position is to change the historic trend and not to burn expensive imports in domestic geysers and heaters”, said the official, adding that based on furnace oil, gas and LNG projections until March next year, Pakistan was better placed in terms of weighted average when compared with rest of the world and should not let this edge go in vain.
The official said Bangladesh had purchased a cargo at $35 per unit, but this was not viable in Pakistan as gas companies already had over $100 million of bad debt. The official said spot prices of LNG were now more than double the cost of furnace oil and hence PSO was being geared and the Power Division being motivated to act swiftly for arrangement of alternate fuel — furnace oil — for power generation with full security of energy supply.
Published in Dawn, October 12th, 2021