Islamabad July 31 2021: GoP is doubling down on its efforts to enhance local gas production by launching the next exploration & production bidding round, targeting high-potential “surrendered” and “under litigation” blocks, by the year end says Petroleum Division, Ministry of Energy.
Ministry of Energy, Petroleum Division (MoE-PD) also clarifies some facts about LNG procurement in view of various media reports on same subject and state that roughly one third of our monthly LNG purchases are on “spot” basis and remaining two third on long-term contract basis and in line with global average for LNG importing countries. It is known that the “spot” LNG commodity price has spiked recently (to over USD 15 per MMBTU) due to a variety of supply-related issues (e.g. curtailment from Exxon’s facility in Papua New Guinea) and demand-related (higher in China and Japan due to warmer weather) factors.
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Therefore, PLL’s Board was forced to accept the 4 LNG “spot” tenders (at c. USD15 per MMBTU price) for September 2021; otherwise, the replacement fuel (i.e. Furnace Oil), which is even more expensive, would have resulted in September power prices higher by at least 20%. Moreover, if, due to RLNG shortage, we are forced to burn diesel to fulfill summer power demand, resultant incremental electricity generation cost in September would be almost 50 percent more expensive. So, it’s the lesser of the two evils.
Finally, if we don’t have enough RLNG in the system, the “opportunity cost” of forced gas load shedding for the industrial sector also has to be accounted for. Crude oil prices are currently around USD 75 per barrel (&price of imported coal has also increased by almost 45 percent since January 2021, so prices of most energy related commodities are on upward trend due to (higher) demand and limited supply factors internationally as economies open up post Covid.
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The critics who question “timing” of various spot LNG purchases, it is pertinent to mention that no one, without a crystal ball, can perfectly time or beat an international commodity market. There is also no evidence-based correlation between spot purchases. Timing (i.e. earlier or later) and actual price of LNG as it varies (up and down) from time to time due to a host of demand-supply factors. As a matter of policy, Pak can opt for 100 percent long-term contract purchases (either on a fixed USD per MMBTU, or a fixed percentage of varying Crude Oil price), but even that would expose it to an “opportunity cost” should the spot prices fall at any stage due to any number of reasons.
