Pakistan 'forced' to buy expensive LNG to cut electricity cost — energy ministry

An aerial view of the Haveli Bahadur Shah LNG power plant in Jhang, Pakistan on July 7, 2017. (REUTERS/File)

• The country imported four liquefied natural gas cargoes this week at the highest rate it has ever paid since 2015
• Pakistan procures about one-third of its LNG through spot trading while the remaining two-third is done through long-term contracts

KARACHI: The Pakistan LNG Limited (PLL), a state-owned entity mandated to procure and import liquefied natural gas (LNG) for the country, was “forced” to buy four LNG cargoes for more than $15 per million British thermal units (MMBTU), constituting the most expensive purchase of the commodity since Pakistan started importing it in 2015, said the energy ministry in a statement on Friday.
“The PLL Board was forced to accept the 4 LNG ‘spot’ tenders [at $15 per MMBTU] for September 2021,” the ministry said in an official statement.
Alternatively, it added, the country would have used furnace oil as the replacement fuel for electricity generation which would have raised the power prices by at least 20 percent in September.
The ministry maintained that diesel was yet another option, but it would have made electricity almost 50 percent more expensive.
After weighing different possibilities, the statement continued, the country decided to opt for “the lesser of the two evils.”
Pakistan procures about one-third of its LNG through spot trading while the remaining two-third is done through long-term contracts.
Earlier this year, the Pakistan Tehreek-e-Insaf (PTI) administration signed a long-term agreement with Qatar for additional 200 million cubic feet a day (MMCFD) of LNG, saying it had concluded the deal at about 31 percent lower rate than the Pakistan Muslim League-Nawaz (PML-N) government’s 2015 contract with Doha for 500mmcfd of gas.
Commenting on the two deals, the former finance minister under the PML-N administration, Miftah Ismail, said despite the government’s claims, people would pay a much higher price for the new LNG import.
“This month, the people of Pakistan will pay $8 per MMBTU for at least three LNG cargoes contracted by the PML-N government while the government is paying $15 for four cargoes,” he told Arab News.
“That is about $22.5 million per cargo,” he added. “Since the government is buying four cargos, it will be paying around $95 million extra.”
However, the energy ministry responded by saying that “no one, without a crystal ball, can perfectly time or beat an international commodity market.”
It added that Pakistan could opt of 100 percent long-term contract purchases as a matter of policy, though the mechanism would still not be without its "opportunity cost" since spot LNG prices could fall in the international market at any stage.