It may not be the horrors of 2008 yet, but it is the closest the world has seen since. Coal prices touched the highest since 2008. Brent briefly touched $80/bbl, highest in three years. US Henry Hub prices have crossed $6/mmbtu, for the first time since 2014. Japan-Korea Marker of LNG was seen trading in the high $30s/mmbtu – another seasonal high. The global markets have felt the tremor, and fears of stagflation have been raised by concerned observers.
Energy demand from China is expected to reach near all-time highs – not just returning to pre-pandemic levels. The country is looking at extremely tough winters in terms of power availability, as industries gasp for more coal. Global demand is recovering, at the same time where Opec Plus members are struggling to ramp up oil production in time, Russia is facing gas supply issues, and US oil inventories have reported decline for seven straight weeks.
Pakistan is just a bystander in the larger scheme, but Islamabad must be worried. The upcoming winters could well be the toughest, both in terms of energy availability and pricing. The soaring global gas prices are also going to keep the pressure up on oil prices, as high gas prices and supply crunch may force a switch to oil consumption from gas.
Pakistan has floated tenders for eight cargoes for December 2021 and January 2022. Recall that October and November tenders have received bids around $20/mmbtu a cargo on average. September cargo final evaluation was never made public. The regulator has not announced revised RLNG prices for September either.
There is a high likelihood that Pakistan will opt against making spot purchases at these rates. The long-term deal with Qatar may come with a respite, but that alone will not completely replace the requirement fulfilled by spot cargoes. And there are no guarantees that supplies at 10.2 percent of Brent will be ensured in such times of global crunch.
Meeting domestic and industrial gas demand, and power generation will both be massive challenges in the next three months. Industries will most likely face curtailment as imported LNG arrivals lessen, and the government will run the domestic-first policy. Despite reduced electricity demand in winters, furnace oil is likely to stay in the mix. Coal based power generation will also be a pricy affair. There is no escape these winters. Anywhere.
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