PAKISTAN will soon be grappling with yet another winter of large gas shortages and the task of rationing as two global LNG suppliers default on their contractual commitments to supply one spot cargo each of the super chilled gas during the current month. That means Pakistan will have to make do with nine cargos of imported gas during November. The cancellation of the cargos makes good business sense for the suppliers because of the massive difference of nearly $70m per cargo between the long-term contracted price and the current spot market. But this isn’t the only problem Pakistan will be dealing with in the next few months. The huge jump in global LNG prices means that the procurement of the imported gas to cover its winter shortages will place a huge burden on the external sector and exchequer, as well as on gas and power consumers in the form of higher tariffs. The default by suppliers and the runaway spot prices have created uncertainty over LNG procurement during the remaining winter months as well. The government claims to have arranged four spot cargos for December but what is the guarantee now that the traders will not default again on that commitment? And there is little the government can do about it.

Given the country’s consistently depleting gas reserves in the absence of new discoveries and the failure to procure enough quantities of LNG, it is fairly clear that this year will be no different from the previous few years. But the default on the contracted supplies and rising prices are likely to exacerbate the situation. In the last couple of months, the country had imported two spot cargoes at a record high rate. Moreover, the government did not get any offer for some of the tenders even at such high prices since suppliers were anticipating a further rise in international prices. Indeed, the government cannot be faulted for surging LNG prices or the default by the suppliers as such. But this does not absolve it of blame for its gross mismanagement of LNG imports. The default underlines that the gas sector bureaucracy not only lacks the ability to read the global market properly and take decisions, it is also devoid of any capacity to ensure that the suppliers honour their commitments or pay heavily for the defaults. Gas consumers are in for a rough ride in the weeks and months ahead.

Published in Dawn, November 3rd, 2021