As LNG heads north, consumers, economy brace for energy shocks

LAHORE: The double whammy of ‘too little and too costly energy’ is about to strike consumers like a lightning bolt as a spiking Liquefied Natural Gas (LNG) is likely to leave furnace oil behind in terms of price, The News learnt on Tuesday.

Latest tender by the Pakistan State Oil (PSO) for import of LNG bagged one of the highest spot prices -18.3791 percent of the Brent. It is more expensive than liquid fuel. A slope of 16.67 percent is approximately oil parity therefore LNG emerges as more expensive option right now, said an insider while commenting on rising trend in the prices of LNG. Much to the astonishment of energy managers, the price range which in a typical pre-Covid summer market used to be in single digit has now almost doubled; perhaps one of the highest ever if compared with earlier summer cargoes, an expert said.

He added that tender floated by Pakistan LNG Ltd (PLL) got an even higher rate of approximately 19.5 percent of Brent.

On the other hand, furnace oil price is also on the rise. Currently, High Sulphur Furnace Oil (HSFO) Platts price is $410 plus premium of $47/mt. So, HSFO after tax would be approximately Rs93,000 per ton. Low Sulphur Furnace Oil (LSFO) premium is 130/mt and with Platts Price of $410/mt it would be close to 120,000 per ton, said an expert. HSFO is usually between $20-25/mt. Now it is $47 and LSFO was in 70s but now it is in the 120s range.

Keeping in view rallying gaseous and liquid fuel markets, experts warned that a tsunami of energy inflation was about to unleash in the country.

The expert said bullish trend in the global natural gas market had primarily been due to thin supplies.

“The world is waking up to the reality that after an extended winter and opening up economies after lockdowns, there is not too much gas available for the spot purchases,” he said.

The energy consumers facing low supplies of natural gas and intermittent electricity were now being made to feel the heat of costly energy, the expert added. Thus, they would have to suffer from the double whammy of ‘too little and too costly energy.

Worryingly, the households are subsequently going to bear soaring utility bills along with having scarce supplies of electricity and natural gas. The much bigger negative impact, according to insiders, will be on circular debt and ability of the government to bear it.

In the current high LNG spot price scenario, long-term LNG deals proved to be a very viable option given the much low rates offered over a long period of time.

Market insiders reminded the policy makers to go for long term contracts in addition to prudently opting to spot deals in a given scenario. The long-term contract was a single digit at around $3 i.e., buyout existing contracts last year, said insiders.

As demand is increasing, the industry expert stressed “we need to tie up at least 05 additional volumes on long-term rather than continue to buy on spot”.

“Spot is expensive over time especially when everyone knows your inability to buy without tender and the urgent purchases when shortage is visible,” the expert said. This was no rocket science but prices would be higher, said insiders.

Same is with the case of liquid fuels. The energy managers having a myopic view delayed furnace oil purchase, which resulted in expensive deals of LSFO and HSFO.

The insider said furnace oil was of course not a good option in normal circumstances but “if it becomes necessary, you need to seal the deal in the most appropriate way, he emphasised.

The insider advised the energy managers to plan primary energy mix, while incorporating available liquid, gaseous, and solid fuels besides renewable energy supplies.