The effect of the month-long war between Russia and Ukraine (Russia-Ukraine War) is visible across the world. Due to the attack on Ukraine, Europe has continuously reduced the purchase of Russian gas from Russia. Due to this, global LNG prices have skyrocketed. Neighboring country Pakistan, which is struggling, is bearing the brunt of this. Pakistan, which is going through an economic and political crisis, is being forced to make power cuts of more than 12 hours in many cities (Pakistan blackout).
a decade mistake
About a decade ago, Pakistan adopted a new long-term energy policy. Under the new policy, Pakistan invested heavily in LNG. Companies in Italy and Qatar have been awarded long-term contracts to supply LNG. As global market prices for LNG have increased, these companies are profiting more by consuming LNG available to Pakistan elsewhere. On the other hand, Pakistan is facing a shortage of LNG from the power plant to the fertilizer plant.
Power outage due to heat wave.
Such a situation arose in Pakistan, which, in order to maintain electricity supply during Eid last month, had to buy just one shipment of LNG from the spot market for around US$100 million. . Pakistan has made a record payment for a remittance at a time when it faces a historic slump in foreign exchange reserves.
Pakistan cannot manage LNG even after many efforts. Due to this, power plants have stopped and Pakistan has to plan and cut power for more than 12-12 hours. This power outage comes as many parts of Pakistan are in the grip of a heat wave.
Take these steps to save electricity.
Pakistan has taken some aggressive steps lately to save electricity. Firstly, government officials were released from the Saturday shift. The budget for security personnel was also reduced by 50%. Wedding ceremonies were also banned.
By interrupting the supply of LNG to the fertilizer plant, more collection is being made for the plant. The situation is such that even the mobile network is lacking in many areas. The towers are not working due to a lack of electricity and operators run out of oil to run the generators.
LNG prices soared
LNG prices have increased by more than 1000 percent in the last two years. After the first Covid epidemic, their prices increased due to increased demand. Then the Russia-Ukraine war ignited their prices. The third reason is the increase in LNG consumption in Europe.
Europe bought 50% more LNG by May this year than last year. Europe has increased LNG purchases to reduce Russia’s dependence on gas. Due to this increase in demand and prices, companies started to profit more from selling LNG to Europe.
These two companies received the bid.
In 2017, Pakistan gave Italian company Eni SpA and trading company Gunvor Group Ltd a bid to supply LNG for the next decade. These companies missed delivery of dozens of shipments to Pakistan between October 2021 and June 2022. Both companies say they do not have LNG to deliver to Pakistan. Although this is not true. According to a Bloomberg report, both companies have not stopped delivering LNG to Europe.