niaz
PDF THINK TANK: CONSULTANT
- Joined
- Jun 18, 2006
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- 5,164
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Hi,
The market is too tight, and we might see this decision backfiring upon us, nonetheless it is an appreciative move on PD's part, a sly move, even if it fails to achieve desired outcome.
Pakistan needs to review it's baseline Rlng requirements and have to think beyond the guaranteed off-takes of ~800mmscfd. With private players in China willing to pay upto $2/mmbtu premiums (over TTF), securing lng vloumes for next two years (26 cargoes starting this winter), market is going to maintain its bullishness. The last week's drop in spot prices have adjusted themselves and have now risen back.
It should be noted that for past couple of tenders we have seen a new disturbing trend. Instead of getting a traditional discounted quote of 5-10% over JKM, we are getting a 20-25% premium on JKM. This aggressiveness is dictated less by the global supply chain woes and more due to cunningness of suppliers and their realization of Pakistan's dire energy situation. To mitigate this, we have resorted to short sighted but quick and manageable fix of utilizing more and more liquid fuels (FO/ Diesel).
To get out of this conundrum, in short term, we require a complete overhaul of our current procurement regime, and get out of band-aid solutions mindset, for example, instead of going for floating spot tenders every two months, we should look into tendering a one year contract for upto 2 cargoes on a fixed price, plenty of suppliers/ traders will be happy to accommodate us, even at $8-10/mmbtu, we will be in a better situation than our current scenario, and will not have to brace for market volatility, for long term, a massive infrastructure boost is required. This infra boost is capital intensive but with friendly investment policies, we can rope in private investors.
The next 2-3 years, will be massively challenging for Pakistan's energy market, till our planned infra projects like, lng terminals, onshore storage facilities and pipelines come online, traversing through these tricky times will be a daunting task for PD.
Having been in the oil industry for a very long time and experienced ups & downs of the international oil prices, I am a firm believer of Term Contracts with a price re-opener available to Seller as well the buyer in case the market gets too skewed.
In the large oil companies this is never a problem because top brass knows how the international commodities prices behave. However, in Pakistan, from the start, most people will assume (often with reason) that somebody has made millions and every time the spot prices dip, they would shout 'I told you so'.
Therefore if I were in the oil ministry or head of PSO, I would carry on as it is and sink or swim with the spot price. This way at least I would not be a potential victim of the NAB, who could keep me behind bar for months without even filing a Reference.