LNG 202:
Volatile spot markets and record breaking prices
Pakistan gets half its LNG through long-term contracts. The rest is dependent on the spot market
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By Ariba Shahid
n the first of this series of articles on the intricacies and workings of Liquified Natural Gas (LNG), the focus was to understand what LNG is, how it works, what that means in terms of shipping, how it ends up getting priced, and how it is traded. Those were very much the basics of LNG. With those still in mind, in this edition we will go deeper into the world of LNG and try to understand how the international market for LNG operates, what the difference is between long and short term contracts, and most importantly what Pakistan’s LNG capacity is. The world has been hungry for natural gas ever since it has become widely available as a fuel source. The consumption of natural
ENERGY
gas has jumped from only 0.28 Bcf/D in 1971 to 4.42Bcf/D in 2019. Of this increase, the last two decades since the turn of the millennium have seen gas consumption increase at a rate of 4.8 percent. However, Pakistan’s gas production during this time has remained almost stagnant at about 4 Bcf/D, and since 2015 the country has been importing RLNG (regasified liquefied natural gas). Because of the reliance on imports and no increase in gas production, approximately 78 percent of households in Pakistan do not have access to natural gas. Despite that, natural gas has been the fastest-growing source of household energy consumption in the country. Domestic consumption is the second largest after the power sector gas consumption. To understand why this is so, first we must look at the international market, and
then look at Pakistan’s LNG capacity.
What’s going on in the international markets?
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couple of years ago, LNG was a cheap commodity. Its low prices were its main selling point and what attracted so many governments and corporations to rely on it. Yet in the past two years, it has hit record highs in terms of price. One simple answer for this rise in price is that just like all the other commodities, LNG prices are rising as a result of the pandemic. When the global economy came to a halt as an initial response to the covid crisis, it was always bound to happen that whenever it started up again it would do so with a jolt. As soon as
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