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As Europe appears to have escaped a harsh winter, LNG prices have fallen somewhat from the peak seen six months ago. Benchmark LNG futures contracts Japan-Korea Marker (JKM) have fallen to a fifth from their September 2022 peak – last seen trading at just over $14/mmbtu. Meanwhile Pakistan has slipped further down the country pecking order, making a marked difference to global LNG supply and demand dynamics – from being a key player outside the Far Eastern giants not so long ago.
Of course, the shortage of dollars ensured that Pakistan was not even in the running. But even before the dollar shortage hit hard, there weren’t enough ships making the rounds around Pakistan’s shores. There simply wasn’t enough LNG available for people like Pakistan, at a time when Europe was stocking up on gas like there is no tomorrow. Despite all the talk of Russia’s isolation in the energy export market – the European Union was the second largest buyer of Russian LNG in 2022 – and more of the same could be in store for 2023.
The fall in LNG prices could not have been worse for Pakistan, as there is not much to look forward to. Even if dollars were arranged today, Pakistan would struggle to find a willing seller outside of long-term government contracts, of which 6-8 cargoes have been arriving each month regularly. Pakistan LNG Limited (PLL) has not applied for spot cargo since July 2022 – when it failed to attract a single bid. Another attempt at a 6 year arrangement found no takers a month later – as Europe was paying a large premium – and boats were happily queuing for weeks instead of looking east.
The price drop may not last long, as supply disruptions in France and more importantly a much faster than expected demand revival from China will emerge. The long-term contract provided LNG price for Pakistan is expected to remain in the range of $10-11/mmbtu for 4QFY23 – as the outlook for Brent crude remains north of $85/bbl for March- June – to keep the 3 months up. average price around current levels.
As electricity demand starts to gradually go back up with a rise in household temperatures, RLNG demand will be created and most likely remain unmet, leading to disapproval of variations in fuel charges because of deviation from the order of economic merit. China and the West have been preparing for longer-term deals – likely to leave Pakistan at the mercy of larger players. From politicizing the failure to get an additional LNG terminal a year ago to now staring at idle capacities has been quite the story.
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