Europe's campaign to quit Russian fuel plunges Pakistan into darkness π΅π°β‘
EU's energy policy is designed to punish Moscow for the war in Ukraine. But it's also wreaking havoc thousands of miles away as Pakistan grapples with a gas shortage
Thread ππ§΅
bloomberg.com
EU's energy policy is designed to punish Moscow for the war in Ukraine. But it's also wreaking havoc thousands of miles away as Pakistan grapples with a gas shortage
Thread ππ§΅
bloomberg.com
Europe is significantly boosting imports of liquefied natural gas as an alternative to Russian pipeline gas
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There is no end in sight as the EU fast-tracks new floating import terminals in a bid to curb Russian imports
πͺπΊβ€οΈπ’
There is no end in sight as the EU fast-tracks new floating import terminals in a bid to curb Russian imports
That's leaving less LNG for poorer nation, while sending the price of available shipments surging
Some emerging nations, like Pakistan, depend on LNG to generate electricity and fuel industries. Spot Asia LNG rates are trading three-times higher than normal for this time of year
Some emerging nations, like Pakistan, depend on LNG to generate electricity and fuel industries. Spot Asia LNG rates are trading three-times higher than normal for this time of year
Pakistan is perhaps the worst hit by the global LNG supply crunch π΅π°
The government is struggling to secure enough LNG to generate electricity. Parts of Pakistan are experiencing planned blackouts of more than 12 hours, threatening the stability of the countryβs new leadership
The government is struggling to secure enough LNG to generate electricity. Parts of Pakistan are experiencing planned blackouts of more than 12 hours, threatening the stability of the countryβs new leadership
Time for a history lesson π
Nearly a decade ago, Pakistan took specific steps to insulate itself from these violent energy price spikes that are roiling the market today
It made investments in LNG import infrastructure and signed long-term contracts with suppliers, like Qatar
Nearly a decade ago, Pakistan took specific steps to insulate itself from these violent energy price spikes that are roiling the market today
It made investments in LNG import infrastructure and signed long-term contracts with suppliers, like Qatar
Why did Pakistan turn to LNG?
π Domestic gas production started to peak about a decade ago. The government saw the writing on the wall, and needed to figure out a way to fill the deficit
π’ Pakistan already had gas pipelines, so importing LNG seemed like a natural choice
π Domestic gas production started to peak about a decade ago. The government saw the writing on the wall, and needed to figure out a way to fill the deficit
π’ Pakistan already had gas pipelines, so importing LNG seemed like a natural choice
Not long ago, Pakistan represented the future for the LNG industry
By the mid-2010s, demand for LNG (gas cooled to -162 degrees Celsius so it can be shipped via tanker) had plateaued in developed markets π―π΅π°π·
LNG producers needed to find new markets so they could sell more fuel
By the mid-2010s, demand for LNG (gas cooled to -162 degrees Celsius so it can be shipped via tanker) had plateaued in developed markets π―π΅π°π·
LNG producers needed to find new markets so they could sell more fuel
Technological advancements had brought down the costs and construction times for import terminals, and new gas fields cut the prices of the fuel itself
At the new, lower prices, poorer countries could finally consider LNG
And that's when Pakistan plunged in π΅π°
At the new, lower prices, poorer countries could finally consider LNG
And that's when Pakistan plunged in π΅π°
Pakistan started importing LNG in 2015
At a conference in 2016, Pakistan's energy minister (who was Abbasi at the time) said that the country could become a TOP SIX importer of the fuel by 2018 πͺ
Pakistan was ALL IN on LNG
At a conference in 2016, Pakistan's energy minister (who was Abbasi at the time) said that the country could become a TOP SIX importer of the fuel by 2018 πͺ
Pakistan was ALL IN on LNG
Suppliers set their sights on Pakistan, and when the government issued tenders for long-term LNG purchase contracts, more than a dozen companies bid for its business
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In 2017, Pakistan selected Italyβs Eni and trading house Gunvor Group to supply the country with LNG into the next decade π€
At the time, the terms were considered good, and the prices were lower than a similar contract signed with Qatar the last year. But cracks started to form
At the time, the terms were considered good, and the prices were lower than a similar contract signed with Qatar the last year. But cracks started to form
Now, though, the two suppliers have canceled more than a dozen LNG shipments for delivery from October 2021 through June 2022, coinciding with the surge in European gas prices
That exacerbated Pakistan's fuel shortage, triggering blackouts and upending its economy π¨
That exacerbated Pakistan's fuel shortage, triggering blackouts and upending its economy π¨
Pakistanβs contracts called for a more modest 30% penalty for cancellation, most likely in exchange for lower prices overall. At this point, prices in the European spot market are high enough to more than offset those penalties
Check out the math for yourself here:
Check out the math for yourself here:
NOTE: Eni and Gunvor have said they had to cancel because theyβre facing their own shortages and donβt have the LNG to send to Pakistan
(Typically when exporters face those challenges, they replace the deliveries by buying a shipment on the spot market, but that didn't happen)
(Typically when exporters face those challenges, they replace the deliveries by buying a shipment on the spot market, but that didn't happen)
So now Pakistan is back to the drawing board, in a worse negotiating position than before
In order to avoid blackouts during the Eid holiday last month, the government paid nearly $100 million to procure a single LNG shipment from the spot market, a record for the nation
In order to avoid blackouts during the Eid holiday last month, the government paid nearly $100 million to procure a single LNG shipment from the spot market, a record for the nation
In the current fiscal year, the countryβs costs for LNG could top $5 billion, twice what they were a year ago
Even so, the government canβt cushion the blow for its citizens: The IMF is in talks to bail out the nation with a key condition that it cuts fuel/electricity subsidies
Even so, the government canβt cushion the blow for its citizens: The IMF is in talks to bail out the nation with a key condition that it cuts fuel/electricity subsidies
Pakistan's energy crisis goes beyond blackouts:
β‘οΈ Gas supply is redirected to power plants, short-changing fertilizer plants, which could threaten the next harvest
β‘οΈ Cellphone towers are using backup generators to sustain service during blackouts, but are running out of fuel
β‘οΈ Gas supply is redirected to power plants, short-changing fertilizer plants, which could threaten the next harvest
β‘οΈ Cellphone towers are using backup generators to sustain service during blackouts, but are running out of fuel
And while Pakistan's government has promised to end load shedding, it continues to struggle to secure enough LNG from overseas
Pakistan was forced to scrap two LNG purchase tenders for a July shipment after it didn't receive any qualifying bids ποΈ
Pakistan was forced to scrap two LNG purchase tenders for a July shipment after it didn't receive any qualifying bids ποΈ
Prime Minister Shehbaz Sharif warned earlier this month that Pakistan doesn't have enough money to continue buying gas from overseas πΈ
arynews.tv
arynews.tv
The global LNG market could stay pretty tight over the next decade as Europe significantly boosts imports, while Russian output falls
That means blackouts that plague Pakistan today could become a more regular occurrence. Only the richest nations will be able to top-up fuel π°
That means blackouts that plague Pakistan today could become a more regular occurrence. Only the richest nations will be able to top-up fuel π°
To be sure, Pakistan's energy woes don't rest solely on Europe or Russia
The government made the decision to double down on LNG (the "champagne of fuels") when prices were low. Now they aren't low anymore
And perhaps the country should have focused more on boosting renewables
The government made the decision to double down on LNG (the "champagne of fuels") when prices were low. Now they aren't low anymore
And perhaps the country should have focused more on boosting renewables
We interviewed some Pakistanis in Karachi who are struggling with the load shedding π
Unannounced blackouts makes it challenging to stay cool during the heatwave, cook dinner, or study
Unannounced blackouts makes it challenging to stay cool during the heatwave, cook dinner, or study
LNG procurement has become a normal topic of conversation among Pakistanis π£οΈ
β‘οΈ Prime-time talk show hosts regularly discuss how Pakistan will get the fuel it needs, and how much it will have to pay
β‘οΈ Citizens post on social media about the latest purchase tenders
β‘οΈ Prime-time talk show hosts regularly discuss how Pakistan will get the fuel it needs, and how much it will have to pay
β‘οΈ Citizens post on social media about the latest purchase tenders
Meanwhile the government is doing all it can to try to reign in power consumption and curb blackouts β‘
Pakistanβs woes also bode poorly for other cash-strapped LNG importers
π§π© The state-owned utility in Bangladesh recently procured the nationβs most expensive LNG shipments from the spot market
π²π² Myanmar has halted imports for the last year due to the run-up in prices
π§π© The state-owned utility in Bangladesh recently procured the nationβs most expensive LNG shipments from the spot market
π²π² Myanmar has halted imports for the last year due to the run-up in prices
And it isn't just LNG
Developing nations are suffering the biggest hit from this year's oil shock π’οΈ
Sri Lanka, Laos, Nigeria & Argentina are among emerging economies that have seen long queues at filling stations in the past weeks because of shortages
bloomberg.com
Developing nations are suffering the biggest hit from this year's oil shock π’οΈ
Sri Lanka, Laos, Nigeria & Argentina are among emerging economies that have seen long queues at filling stations in the past weeks because of shortages
bloomberg.com
Now, Pakistan is again looking to sign a new long-term LNG deal π€
Shahid Khaqan Abbasi (who made the initial deals with Eni and Gunvor in 2017) is back overseeing the energy sector for Prime Minister Shehbaz Sharif. Will he have better luck this time?
bloomberg.com
Shahid Khaqan Abbasi (who made the initial deals with Eni and Gunvor in 2017) is back overseeing the energy sector for Prime Minister Shehbaz Sharif. Will he have better luck this time?
bloomberg.com
Fereidun Fesharaki, chairman of industry consultant @FGEnergy, sharply criticized Europe's energy policy
βIt is ok for Europe to decide what they want within their borders,β he said.βBut it is unfair and unreasonable to export the mess abroad, especially to the developing worldβ
βIt is ok for Europe to decide what they want within their borders,β he said.βBut it is unfair and unreasonable to export the mess abroad, especially to the developing worldβ
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