June 28, 2022
ISLAMABAD – Pakistan’s energy crisis is set to worsen over the next several weeks as it struggles to procure LNG at an affordable rate when little is available in an international market that has been sorely affected by the political fallout of the Russia-Ukraine war.
The global LNG shortages have sent the fuel’s price spiralling to record highs. The state-owned LNG Ltd last week scrapped the only, but most expensive offer it has ever received against a tender for four cargoes of LNG for July shipments.
Qatar had offered an LNG shipment at just below $40/mmBtu, which would have been the priciest for Pakistan if it hadn’t rejected it. The most expensive cargo that Pakistan has ever purchased was at $30.65/mmBtu in November 2021. This is Pakistan’s third failed attempt to buy LNG cargoes for next month as it faces the threat of an escalation in blackouts that people are already trying to cope with across the country. The earlier two tenders issued in May and June had attracted three offers in total, which were scrapped as none was technically responsive.
Though the government says it is talking to various gas exporters, including Russia, to ease domestic shortages, it has so far not been able to lock any new deal to ease power outages amid surging electricity prices. Spawned by Covid-related supply disruptions and exacerbated by Russia’s war on Ukraine, the spike in global energy prices has pushed domestic electricity fuel costs by more than 100pc.
The government plans to raise power tariffs by 47pc from next month to recoup some of the losses being incurred on account of expensive fuel imports. According to a report, LNG prices in Pakistan have already gone up by 40pc in recent months, despite most cargoes coming from cheaper long-term contracts with Qatar owing to expensive spot purchases by the present government in April to meet the power demand. Hence, the decision to reject the priciest LNG shipment was a prudent one.
With Russia determined not to let up until it secures its strategic targets, chances are that international gas supplies will remain tight and their prices elevated over the next several months. The situation may worsen if global supplies don’t normalise before winter, when shortage of the fuel for heating will create more problems for cash-strapped countries like Pakistan.
The current supply gaps are already forcing developed nations like Germany to initiate gas rationing and consider retracting on their commitment to halt financing for overseas fossil fuel projects in a reversal of their plan to tackle global warming. Even if Pakistan manages to overcome its balance-of-payments crisis and raise funds to finance energy imports, it may face difficulty in procuring LNG due to its unavailability in the market. This looming winter supply gap calls for formulating a strategy to both minimise gas wastage and ration fuel while it is possible.