Pakistan's LNG Market Faces Oversupply and High Prices

Pakistan is currently grappling with an oversupply and high prices scenario in the liquefied natural gas (LNG) market. Due to this situation, the country has decided to halt the purchase of LNG cargoes on the spot market until at least the onset of winter in November. The surge in demand for LNG in Asia, driven by extreme temperatures, has pushed spot prices to their highest levels since mid-December, with Asia spot LNG trading at $12.00 per million British thermal units (mmBtu) recently.

Despite the soaring temperatures and increased power demand in Pakistan, the country's LNG demand remains lower than its current supplies. Pakistan heavily relies on natural gas for electricity generation, but due to elevated tariffs affecting household usage, the annual power consumption is expected to decline for the first time in 16 years. The impact of the IMF bailout last year, which resulted in higher retail prices, is particularly affecting poor and middle-class households.

Industrial demand in Pakistan is also subdued due to an uncertain economic outlook. The country, which last procured a spot LNG cargo in late 2023, recently canceled a spot LNG tender for delivery in January, citing oversupply and limited interest at prevailing spot prices. Pakistan is now shifting its focus towards embracing renewable energy sources to reduce its import bill and decrease vulnerability to geopolitical disruptions.

Pakistan faced significant power shortages in the past when it couldn't afford expensive LNG following price spikes triggered by the Russia-Ukraine conflict. The country is exploring options to access more affordable natural gas by collaborating with Iran on a pipeline project, although concerns about potential sanctions pose a challenge. The objective is to secure cost-effective gas supplies without risking punitive measures against Pakistan.

Pakistan's current energy challenges, particularly in the LNG market, highlight the need for strategic planning and diversification of energy sources. By exploring renewable energy options and seeking affordable gas supplies, Pakistan aims to address its energy needs while mitigating the impact of external factors on its energy security. Embracing sustainable energy practices and fostering international collaborations are crucial steps towards ensuring a stable and reliable energy future for Pakistan.