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Crisis bidding for January LNG cargoes happening at record high prices

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Crisis bidding for January LNG cargoes happening at record high prices

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What happened :

The second attempt made by Pakistan authorities to arrange import of liquefied natural gas (LNG) in January 2021 through emergency bidding, has attracted record-high prices leaving the authorities in a state of bewilderment. Earlier this week, after failing to secure any bids for LNG supply from trading companies, the authorities tried their luck once again and managed to attract trading companies but at a very high cost.

In response to the second bid opening, two bidders submitted bids for the first January 8-9 window. This included the lowest bid of $15.28 per million British thermal units (mmBtu) from DXT Commodities and $19.8 per mmBtu from Trafigura. Both these bids are the highest so far and for the first time quoted in dollar per mmBtu instead of slope (percentage of Brent price). However, the lowest bid of $15.28 per mmBtu works out at about 35 percent of Brent.

“This is economically unviable even for the power sector and politically suicidal for the PTI-government,” said a government official, suggesting that the government may have to cancel these bids and otherwise this will just continue to add upon the already considerable financial burden of the country. He explained that at $15.28 per mmBtu, the LNG was almost equivalent to $85-90 per barrel of oil against current Brent price of about $50 per barrel. He said the government had pre-ordered in October a $6 per mmBtu vessel originally scheduled for delivery using contractual flexibility and now it was faced with $13 and $15 per mmBtu. At $6per mmBtu, the average 3.2 million mmBtu cargo worked out at about $19m while at $15.28 per mmBtu the same cargo would cost about $49m — almost $30m costlier.

According to officials, the government was left with no option but to nullify these tenders and immediately order Pakistan State Oil to arrange FO for power plants which would in turn all the generation of cheaper electricity.

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