here may be an acute gas shortage during the next winter despite the fact that the state-owned Pakistan LNG Limited (PLL) last week received two bids to supply two Liquefied Natural Gas (LNG) cargos for the months of January and February 2024 at $22-24 per mmbtu.

The average contracted LNG price in the past was $12-15 per mmbtu.

Earlier, in June the PLL had received no bids against tenders in the international spot market for the supply of at least three cargoes each for October and December 2023.

Experts say that although the recent bids are on the high side, Pakistan has no option but to accept those, given the international market situation. The government has to provide for the winter gas demand of domestic consumers as well as industry.

Pakistan had faced a similar situation last year when it failed to attract LNG suppliers with its international tenders. As a result, the consumers faced gas load-shedding for prolonged durations.

Spot market

The international spot gas market has become highly volatile after the Russia-Ukraine war started in February 2022. LNG prices have risen significantly because of the soaring gas demand in Europe. To support Ukraine, the NATO member countries have boycotted Russian gas. Most of the EU member countries therefore have to look for alternative sources.

Most of the traditional suppliers of LNG to Pakistan now prefer to sell their gas cargoes to the wealthy European countries where they stand to make windfall profits. Even some long-term suppliers to Pakistan have cancelled earlier contracts to divert their supplies to Europe.

In recent months, LNG prices have dropped in the international market significantly. Still, the suppliers seem reluctant to trade with Pakistan. A shortage of foreign exchange reserves in the country, coupled with a drop in its credit rating, may explain this trend.

“Pakistan is a very small market for LNG suppliers. Most gas suppliers don’t respond to its international tenders,” says Haneea Isaad, an energy finance analyst at the Institute of Energy Economics and Financial Analysis (IEEFA).

According to her, Pakistan has faced an affordability problem for the last couple of years. Moreover, she points out that the country is facing a foreign exchange reserves problem. Many big importers have been unable to purchase foreign currency in the open market, leave alone the interbank market. After leading credit rating companies degraded Pakistan’s credit rating, the suppliers were worried.

In July 2022, the PLL had floated a tender for the purchase of 10 LNG cargoes from the spot market. However, that tender was scrapped due to lack of response from the bidders. Recently, the spot price of liquefied natural gas (LNG) has dropped below $10 per mmBtu in the spot market from the highest level of $70 per mmBtu in August last year and around $40 per mmBtu in December 2022.

Consumers

Most of the imported natural gas is used by power generation companies and exporting industries.

To solve its persistent energy shortage problem, Pakistan needs to figure out first how to make energy affordable for all its citizens. 

Currently, the share of LNG in power generation is low (10-12 percent) because of its higher cost. Earlier most power generation units had switched to LNG or coal due to an increase in the furnace oil prices. According to Gas Outlook, Pakistan’s LNG demand will double, reaching 16 million tonnes in 2032 from 8 million tonnes in 2021.

As far as domestic consumers are concerned, LNG is one of the most cost effective options during the winter.

The gas load-shedding problem has aggravated. Domestic consumers in Karachi, Lahore and Islamabad are facing shortages during the cooking hours. The worst problems were experienced during the month of Ramazan this year when the gas distribution companies announced rationing of gas during Sehri and Iftar timings all over the country.

According to some reports, Pakistan is facing a gas deficit of 1.35 bcfd (billion cubic feet per day).

Last week, the government reported that LNG was now the most expensive fuel for power generation in the country. (Furnace oil has a generation cost of Rs 48.56 per unit and LNG Rs 51.42.)

Pakistan’s natural gas reserves are depleting fast and the demand is on the rise. According to government projections, the amount of gas available will decrease further and reach 1,659 mmcfd in 2029-30.

“Domestic consumers are also using liquefied petroleum gas (LPG), whose prices also rise in winter,” says Zeenia Shaukat, The Knowledge Forum director. She laments that domestic consumers are paying inflated gas bills but still have to face gas load shedding for long hours.

Most people prefer LPG because electricity is too costly and use of wood or coal for cooking is environmentally unsafe.

Pakistan has been unable to build pipelines for sustained gas supply from Iran and Turkmenistan. As a result, it has to rely on indigenous energy sources like coal, which is cheaper but polluting.

It is really hard to find the right balance between getting enough energy and protecting the environment.

To solve this persistent energy shortage problem, Pakistan needs to do a few things. First, it has to figure out how to make energy affordable for every citizen. The country also needs to improve its credit rating and build foreign exchange reserves.

Pakistan should also invest in alternative energy sources like solar and wind power to have more sustainable and eco-friendly energy.

It is important to have a plan that addresses both short-term elements like importing LPG and long-term ideas for a more diverse energy mix.

By harnessing renewable energy and facing the problems head-on, Pakistan can make sure it has enough energy and a better future for everyone.

The writer is a senior journalist at a news channel in Karachi. He can be reached at shuja98@gmail.com