ISLAMABAD: Petroleum Division has said comparing a spot price in a high winter month with a long-term contract is comparing apples and oranges. If the same comparison is made for a summer month, it will be much lesser.
The spokesperson of Petroleum Division says that spot market for LNG is always higher in the winter months versus summer months given the global demand and supply dynamics. If a comparison is to be made, it can be made for a full year that includes all seasons. In 2020, all the spot cargoes purchased by Pakistan averaged $ 6.84 DES (Delivered Ex Ship), including all the higher cost winter cargoes in January, February, November and December 2020. In the same year, all the cargoes received under long term contracts averaged $ 8.06 DES, a full 18 percent higher.
It must be noted that Pakistan LNG Limited is bound to follow PPRA procurement process, which requires a 30-day tender with a ten day period thereafter. PLL starts the tender process approximately 90-100 days beforehand as soon as demand is confirmed. It is being repeatedly quoted that in 2019, tender for October -December was given in August while in 2020 the tenders were issued late. The facts are that a consolidated tender for October-December 2019 for 10 cargoes was issued in August, prior to confirmation of demand. When the demand was finally confirmed, only 3 out of these 10 tenders were awarded. The average cost of cargoes in December 2019 was $7.81 which is higher than that of December 2020 at $6.34.
It is pertinent to mention here that if LNG were priced as natural gas (which will require change in legislation) thereby ensuring price recovery for any sale, additional short term to medium term contracts can be put in place. Until such time, spot purchases can only me made once firm demand is established for consumers who are prepared to pay the full price.
At this time supply side of LNG in the global market is very tight because many facilities are facing technical issues. It is expected that these supply constraints will ease by March 2021.
However contrary to government claims, the country likely to face gas crisis in January 2021 because of failure of Petroleum Division to procure three LNG cargoes for the first 20 days of next month, Pakistan on Monday received bids from five LNG trading companies for two LNG cargoes for February 2021 at the highest price of up to 32.4888 percent of Brent.
Pakistan LNG Limited (PLL) obtained the lowest bids for delivery windows of February 15-16 and Feb 23-24, 2021 at a price of 20.8483-23.4331% of Brent. The LNG trading company SOCAR came up with the lowest bid for February 15-16 at 20.8483, which is equal to $10.5 per MMBTU and ENOC appeared with the lowest bid for the time slot of February 23-24 at 23.4331% of Brent (equal to $11.70 per MMBTU). According to sources in the oil & gas industry, the government obtained the LNG prices more than the diesel price as LNG cargoes are already booked across the globe. Had the government arranged the bidding for spot cargos for winter back in August-September 2020, it would have attracted better prices.
