The effect of the month-long war between Russia and Ukraine (Russia-Ukraine War) is visible worldwide. Due to the attack on Ukraine, Europe has continuously reduced the purchase of Russian gas from Russia. Due to this, the global prices of LNG have reached the sky. The neighbouring country Pakistan, which is going through difficulties, is facing the brunt of this. Pakistan, which is going through an economic and political crisis, is being forced to do power cuts of more than 12 hours in many cities (Pakistan Blackout).
About a decade ago, Pakistan adopted a new long-term policy regarding energy. Under the new policy, Pakistan had invested heavily in LNG. Companies in Italy and Qatar were given long-term contracts to supply LNG. Since LNG prices in the global market have increased, these companies are earning more profit by consuming the LNG available to Pakistan elsewhere. On the other hand, Pakistan is facing a shortage of LNG from Power Plant to Fertilizer Plant.
Electricity cut due to heatwave.
Such a situation has arisen in Pakistan that to maintain the supply of electricity during Eid last month, it had to buy only one LNG shipment from the spot market for about $100 million. . Pakistan made a record payment for a shipment at a time when it is grappling with a historic fall in foreign exchange reserves.
Pakistan cannot manage LNG even after making a lot of efforts. Due to this, power plants have reached a standstill, and Pakistan has to plan and cut power for more than 12-12 hours. This power cut happens when many parts of Pakistan are in the grip of a heatwave.
Take these measures to save electricity.
Pakistan has taken some aggressive measures in recent times to save electricity. First of all, government employees were discharged from the Saturday shift. The budget for security personnel has also been reduced by 50 per cent. Wedding ceremonies have also been banned.
By stopping the LNG supply to the fertilizer plant, more collection is being done to the power plant. The situation is such that even the mobile network is missing in many areas. Towers are not working due to a lack of electricity, and operators are left with no oil to run generators.
LNG prices soared
LNG’s prices have increased by more than 1000 per cent in the last two years. After the first Kovid epidemic, its prices increased due to increased demand. Then the Russia-Ukraine war set its prices on fire. The third reason is the increased consumption of LNG in Europe.
Europe has bought 50 per cent more LNG till May this year than last year. Europe has increased purchases of LNG to reduce Russia’s dependence on gas. Due to this increased demand and prices, companies have started making more profit by selling LNG to Europe.
These two companies got the tender.
In 2017, Pakistan gave a tender to Italian company Eni SpA and trading house Gunvor Group Ltd to supply LNG for the next decade. These companies have missed the delivery of dozens of shipments to Pakistan between October 2021 and June 2022. Both companies say that they do not have LNG to deliver to Pakistan. Although this is not true. According to a Bloomberg report, both the companies have not defaulted in delivering LNG to Europe.