The energy crisis in Pakistan is expected to get worse over the coming weeks as it tries to find affordable LNG on a global market that is severely damaged by the political consequences from the Russia-Ukraine war and has little to offer.
Because of the global LNG shortages, fuel prices have soared to all-time highs. In response to a bidding for four LNG cargoes for delivery in July, the state-owned LNG Ltd this week rejected the lone, but most costly offer it had ever received. If Pakistan hadn’t rejected it, Qatar’s offer of an LNG cargo at slightly under $40/mmBtu would have been the most expensive. Pakistan’s most costly cargo purchase to far was $30.65/mmBtu in November 2021. This is Pakistan’s third failed attempt to purchase LNG cargoes for next month as it grapples with the possibility of a worsening of the country’s already widespread blackouts.
Three offers were submitted for the first two tenders, which were released in May and June but were discarded since none of them met the technical requirements.
Although the government claims to be in talks with a number of gas suppliers, notably Russia, to alleviate local shortages, it has so far been unable to secure any new agreements to reduce power outages amid rising electricity prices. The surge in energy prices, which was sparked by Covid-related supply delays and made worse by Russia’s war in Ukraine, has increased domestic electrical fuel costs by more than 100 percent. To make up for part of the losses brought on by expensive fuel imports, the government intends to increase power rates by 47 percent starting in the next month.
A study claims that despite the majority of cargoes coming from more affordable long-term contracts with Qatar due to pricey spot purchases by the current administration in April to meet the need for power, LNG prices in Pakistan have already increased by 40% in recent months. Therefore, it was wise to refuse the most expensive LNG shipment. Over the coming months, it is likely that international gas supplies will remain constrained and their prices will remain high since Russia is unwilling to relent until it has achieved its strategic goals. If global supplies don’t return to normal before winter, when a shortage of fuel for heating will cause more issues for financially constrained nations like Pakistan, the situation could get worse.
Due to the current supply shortages, wealthy countries like Germany are already considering rolling back their promise to stop funding for abroad fossil fuel projects in an effort to reverse their strategy for combating global warming.
Even if Pakistan is able to resolve its balance of payments issue and acquire money to pay for energy imports, it may still have trouble obtaining LNG because it is not widely available. Due to the impending winter supply gap, a plan must be developed to limit gas waste and ration fuel while it is still practical.