Page 6 - AsiaElec Week 32 2021

AsiaElec COMMENTARY AsiaElec
Pakistan justifies expensive LNG purchases
The government has been forced to defend expensive spot LNG cargoes amid a firming of international gas prices
PSKISTAN
THE Pakistani government’s liquefied natu- ral gas (LNG) purchases have been under the microscope this week, after state-owned Paki- stan LNG Ltd (PLL) paid more than $15 per mmBtu ($414.90 per 1,000 cubic metres) for spot deliveries in September.
The news was somewhat surprising, given that the company cancelled a tender for eight cargoes in July on the grounds that $13.79 per mmBtu ($381.43 per 1,000 cubic metres) was too much to pay, but gave weight to reports this week that state-owned Pakistan State Oil (PSO) had agreed to pay more than $20 per mmBtu ($553.20 per 1,000 cubic metres) for LNG.
While PSO promptly denied the report, say- ing it had cancelled the tender as the price was too high, the country’s exposure to the spot market has left the government open to criticism from its political rivals.
Political fallout
PLL paid its highest rates ever for LNG, after conducting a closed tender for September, local daily The News International reported last week. It said the state company had agreed to pay $15.19-15.49 per mmBtu ($420.19-428.45 per 1,000 cubic metres) for four cargoes.
The news outlet quoted unnamed Petroleum Division officials as saying that although inter- national prices remained robust, the govern- ment was watching the market and that if prices retreated then PLL would retender the cargoes.
The purchase, however, has created an opening for opposition party Pakistan Muslim League-Nawaz (PML-N) to demand a probe.
“The recent [regasified LNG] RLNG pur- chase, which is [the] most expensive to date, is a daylight robbery. The government failed to benefit from cheap RLNG rates during COVID- 19 and is now making these costlier purchases. PTI’s [Pakistan Tehreek-e-Insaf ’s] incompetence and greed will cause our nation [to lose] billions of dollars,” PML-N president Shehbaz Sharif tweeted on July 31.
“This procurement has cost the country $422.4mn extra. The PTI government repeatedly lied to the nation on the matter as it has bought LNG for $15 per mmBtu which the PML-N
bought for $8 per mmBtu,” Sharif said.
The government, however, has argued that prices are high because the country relies on the spot market for about a third of its spot pur- chases. As such, when prices climb, state buyers do not have the luxury to refrain from buying
the fuel.
“It is known that the spot LNG commodity
price has spiked recently due to a variety of sup- ply-related issues and demand-related factors,” the government said. “Therefore, PLL’s board was forced to accept the four LNG spot tenders for September 2021.”
Asian spot LNG prices soared this week, with Reuters reporting on August 5 that Pet- roChina had sold a cargo to Trafigura for more than $16.14 per mmBtu ($446.43 per 1,000 cubic metres).
PetroChina sold the cargo for September delivery at the Fujian terminal in China, Reuters said citing S&P Global Platts data, with the news- wire noting that this was the highest spot Asian prices had been at this time of year since 2013.
Islamabad, however, has argued that switch- ing from gas to fuel oil for the country’s power generation needs would prove the more costly of the two options.
“Moreover, if, due to RLNG shortage, we are forced to burn diesel to fulfil summer power demand, the resultant incremental electricity generation cost in September would be almost 50% more expensive,” the government added. “So, it’s the lesser of the two evils.”
Purchase denied
The situation with PLL set the stage this week for further pricing drama, with local daily Dawn reporting on August 3 that PSO had last month agreed to pay $20.055 per mmBtu ($554.72 per 1,000 cubic metres) for a cargo.
The paper, which cited a pricing notice from the Oil and Gas Regulatory Authority (Ogra) on August 2, had avoided publicising terms of the deal in order to avoid drawing criticism.
PSO was quick to deny the Dawn report, tweeting that same day that it had scrapped a tender on July 27 because of high prices and had issued a fresh tender. The company refuted
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w w w . N E W S B A S E . c o m Week 32 11•August•2021