Tuesday, October 12, 2021

Soaring Prices of Imported LNG Threaten Pakistan's Economic Recovery

Soaring LNG prices are adversely affecting Pakistan's balance of payments and threatening the nation's post-COVID economic recovery.  Pakistan's trade deficit has widened to nearly $12 billion in July-September 2021 quarter, up more than 100% from the same period last year. The nation's heavy reliance on expensive imported energy has been the main cause of prior balance of payments crises that have forced it to seek IMF bailouts more than a dozen times in the last 70 years. 

Global LNG Prices. Source: The Peninsula Qatar 

The average LNG price for November delivery into Northeast Asia was estimated at about $32 per metric million British thermal units (mmBtu), up nearly 20 percent from the previous week, according to the Peninsula Qatar publication. Price agency S&P Global Platts said on Thursday that its Japan-Korea-Marker, which is widely used as a benchmark for spot LNG contracts, rose to $34.47 per mmBtu.       

Pakistan Trade Stats. Source: Topline Securities

Rising LNG prices have forced power generating companies in Pakistan, Bangladesh and the Middle East to start switching fuels pushing oil prices higher.  About 60% of Pakistan's current LNG needs are covered by long-term contracts at significantly lower prices than the current spot prices. US crude closed above $80 for the first time since late in 2014, bringing its climb since the end of last October to 125%, according to the Wall Street Journal

Pakistan Coal Power Plants Under CPEC. Source:China's Global Power Database

All Pakistani Power Plants Under CPEC. Source: China's Global Power Database

The key to Pakistan managing its current accounts lies in reducing reliance on imported energy and dramatically increasing its exports. Pakistan already faces climate change pressures forcing it to change its energy mix to reduce the use of fossil fuels. 

Pakistan's Malik Amin Aslam with CNN's Becky Anderson 

Malik Amin Aslam, Pakistan Prime Minister Imran Khan's special assistant on climate change, said recently in an interview with CNN that his country is seeking to change its energy mix to favor green.  He said Pakistan's 60% renewable energy target would to be based on solar, wind and hydro power projects, and 40% would come from hydrocarbon and nuclear which is also low-carbon. “Nuclear power has to be part of the country’s energy mix for future as a zero energy emission source for clean and green future,” he concluded. Here are the key points Aslam made to Becky Anderson of CNN:

1. Pakistan wants to be a part of the solution even though it accounts for less than 1% of global carbon emissions. 

 2. Extreme weather events are costing Pakistan significant losses of lives and property. Pakistan is among the countries most vulnerable to the effects of climate change. 

3. Pakistan is moving towards renewable energy by converting 60% of its energy mix to renewable by 2030. Electric vehicle (EV) transition is also beginning in his country. 

4. Aslam said:  “We are one of the world leaders on nature based solutions. However, the World Bank (WB) in its Report yesterday came up with really good numbers in a comparison done of countries who are shifting their mainstream development towards environment friendly policies and Pakistan came atop among them,” the SAPM explained. 

900 MW Zonergy Solar Park in Bhawalpur, Pakistan

To a question on Pakistan’s capacity to make investments in nature based solutions, he said, “We cannot afford not to do it….that’s a cliche in our country and we are living that cliche in Pakistan. We are not just talking the climate talk rather doing climate action in Pakistan.” 

1,100 MW Karachi Nuclear Power Plant Unit 2

To a question on the 26th Conference of Parties (COP-26) under the United Nations Framework Convention on Climate Change, Amin said his country’s revised "national determined contributions" (NDCs) are going to be released next week. “….that’s going to clearly tell the world that this (money) we had spent in nature and could do further and that was also our direction,” he added. The SAPM informed that Pakistan was going to COP 26 with a very clear message that the country has been affected by climate change, climate injustice, adding, “but we are one of the countries that are leading the way to nature based solutions.” 

Pakistan Among Top 3 Countries For Newly Installed Hydro

He cited the WB Report and said 44% of the country’s mainstream development was climate friendly investment and it had doubled in the past one year. He said 60% renewable energy target would to be based on solar, wind and hydro power projects, and 40% would come from hydrocarbons and nuclear which is also low-carbon. “Nuclear power has to be part of the country’s energy mix for future as a zero energy emission source for clean and green future,” he concluded.

Installed Wind Power in Pakistan. Source: Modor Intelligence 

Here's a video of Malik Amin Aslam's interview with CNN"s Becky Anderson:



Riaz Haq said...

farrukh saleem
To be fair, the following prices are not in PTI's control:
Oil from $37 to $84
Palm Oil up 36%
Coal from $60 to $250
LNG from $10 to $50


Pando said...

Most of our LNG is imported via long term contracts. Problem is with spot buying which is like a wild draw so it can wither be really good or really bad. Need to convert it to long term for at least 90% of our use. Rest 10% we can buy if required from spot market.

Riaz Haq said...

Pando: "Most of our LNG is imported via long term contracts. Problem is with spot buying which is like a wild draw so it can wither be really good or really bad. Need to convert it to long term for at least 90% of our use. Rest 10% we can buy if required from spot market"

About 60% of Pakistan's current LNG demand is covered by long term contracts.

Riaz Haq said...

Greener CPEC: Debt-for-environment swaps


In a debt-for-environment swap (DFE), a creditor government reduces a debtor country’s debt in return for commitments by the indebted nation to invest domestically in environmental conservation initiatives. DFEs aim to allow a country burdened with debt to simultaneously address its financial issues while remedying environmental degradation and social inequality.

Any proposed DFE schemes should align with Pakistan’s existing sustainability policies to avoid issues of social inequality and inefficient implementation. For example, in April 2021 Pakistan’s government proposed a DFE scheme to propel its existing Ten Billion Tree Tsunami afforestation programme. But implementing a DFE swap in this context could worsen social issues associated with the plan, such as forced displacement and the loss of community herding traditions.

For foreign financial aid to work on the ground, Pakistan needs to address inconsistencies within its existing domestic policies. It should consult local communities, NGOs and local government agencies when designing interventions, and ensure that their implementation is transparent. This would enable Pakistan to effectively address criticisms of ‘greenwashing’ in its economic recovery programme.

Adapting Pakistan’s Special Economic Zones
Special Economic Zones (SEZs) are free-trade areas in a country, where the commercial laws are tailored to attract both foreign and domestic investors, such as allowing certain tax exemptions. SEZs, which represent an integral component of CPEC’s second phase provide a significant opportunity for employment generation and business growth in Pakistan. It was announced in February, for instance, that the jewel in the CPEC crown, Gwadar SEZ (home to Gwadar Port), would become a tax-free zone. Addressing unemployment is a key aspect of the country’s recovery plan, considering that half of Pakistan’s working-age population experienced either income or job losses during the pandemic and GDP contracted by an estimated 1.5% in the 2020 financial year.

In China, for instance, SEZs attract around 50% of total foreign investment, something that if replicated would be hugely beneficial to Pakistan’s economy. However, in order for foreign investors not to crowd out smaller businesses from supply chains in SEZs, the Pakistani government should encourage joint ventures between local businesses and foreign investors.

PTI Fan said...

There is no reason for alarm. Our brothers in east Malaysia and Indonesia are largest producers of palm. Preferential rates are to be negotiated. For gas we can rely on brothers in west. Team PTI will announce good news soon. Meanwhile we have to focus on solar with China.

samir sardana said...

There is ONLY 1 SOLUTION AND 1 OPPORTUNITY,for Pakistan in this Power Crisis !

Which is the power source,which has NIL SUPPLY CHAIN RISK AND LOGISTICS RISK ?


Which is the power source,which can be run at 100% or more capacity - and where THERE CAN BE NO FUEL SHORTAGE ?

What has been the experience of RE,in Texas,last year ?

There is ONLY 1 SOURCE for Pakistan.Even if Thar Coal is beneficiated,there can be a logistics problem,on occasions - if by rakes,and if trucks - then there is a risk of pollution - and there are fuel (diesel) prices and fuel shortages.

There is ONLY 1 FUEL with no Raw Material Supply risk,No diesel price risk (for logistics) and no logistics risk and no need for spinning or reactive power,and which is base load and peak load power.


Import Chinese reactors on 40 year loans, with decommissioning contracts
Make the Chinese take back the DU
Import the Fuel Rods,from PRC
Some Fuel Rods - can be made in Pakistan - after importing Yellow Cake,or UF6 or LEU from PRC (so that some fuel diversion is possible)
Use COVID,as the Force Majeure event
Place order for Nuke Subs,with PLN or France (after Aussie fiasco) - and divert the HEU,for sub fuel
Place the Commercial Power reactor, in as much safeguard,as the Indians do,

And then use the Nukes on India ! dindooohindoo

It is a clear message from providence !

samir sardana said...

PTI Fan said...
"There is no reason for alarm. Our brothers in east Malaysia and Indonesia are largest producers of palm"

The Indonesian brothers,do NOT talk of Kashmir !

The Malaysian Brother Maha-Teer (The Great Arrow) Mohammad said that India had INVADED AND ANNEXED KASHMIR - and Chaiwala was rattled and stopped buying CPO from KL. BUT THEN THE INDON-ASSS-EANS SUPPLIED THE CPO !

Let the Indians buy Soya Oil and Mustard Oil from LATAM !

If the Indonesian and Malaysian Brothers,just support the KASHMIR BROTHERS and RAISE THE CPO rates for the INDIANS - and then give zakat to Kashmir,and REDUCE THE RATES for PAKISTAN - so that Pakistan can give charity to the Kashmiri Mujahideen - then Kashmir will be a NATION OF INDEPENDENT BROTHERS !

But the Indian OWNS the Indon-ass-eaans ! They own their coal mines and there are several large industries in Indon-ass-eaah run by Indians - like the Lohias - Indo - RAMA !

Indon-ass-eeans say that they are Hindoos by Culture,and Muslims by religion ! What does that mean ? Several Indon-ass-ean Muslims,have Hindoo names - like Saraswati,Rama and Sita!




Y ?

When will these Brothers awaken ? dindooohindoo

If Saud stops selling Oil to the Hindoos - Chaiwala will buy from US or ...


Riaz Haq said...

#Pakistan faces an existential crisis with fast melting glaciers. It has more glaciers outside of the polar icecaps than anywhere on earth. The glaciers feed one of the oldest and most fertile valleys on the planet. #water #agriculture #food https://aje.io/rnedz9 via @AJEnglish

The UN’s Intergovernmental Panel on Climate Change (IPCC) published its latest report in August 2021, on the heels of one of the hottest and most devastating summers on record: floods in northern Europe and China, wildfires in the US, and heatwaves everywhere.

The report tells us that the consequences of the current global warming crisis are largely irreversible. The most we can do is to prevent all-out ecological collapse.

One of the more sobering findings of the report is that polar and mountain glaciers are likely going to continue to melt, irreversibly, for decades or centuries to come.

Pakistan has more glaciers outside of the polar icecaps than anywhere on earth. The glaciers feed one of the oldest and most fertile valleys on the planet – that of the Indus Basin, split between India and Pakistan. Roughly 75 percent of Pakistan’s 216 million population is settled on the banks of the Indus River. Its five largest urban centres are entirely dependent on the river for industrial and domestic water.

Pakistan has been blessed with regular agricultural cycles that have sustained its economy through successive crises. However, if the IPCC Report is correct – which it almost certainly is – by 2050, the country will be out of water.

Pakistan is not the only low-income country facing the impacts of climate change. It is not alone in looking on helplessly as industrialised nations – China and the US being the foremost – drag their heels on lowering emissions. Pakistan, like the Maldives and many other island nations, will suffer from the consequences of global warming disproportionately. However, unlike many countries that have taken up the issue of global emissions at the UN, Pakistan is not doing even the bare minimum to try and secure its future.

To say that this is the largest security issue the country will face in the next few decades would be putting it mildly. No other country is as dependent on non-polar ice for freshwater as Pakistan. No other country stands to lose as much. Yet, Pakistan’s government seems singularly unaware of the looming crisis. It has not even made much effort to meet its target of producing 60 percent of its electrical power from renewable sources by 2030. At the moment, the country still gets well over 60 percent of its electricity from fossil fuels.

Pakistan is already facing mounting environmental challenges. Heatwaves are killing scores of people and impacting crop cycles and yields on a regular basis. This year, both its largest city Karachi and its capital city Islamabad experienced devastating floods. Furthermore, the 806-kilometre (500-mile) Karakoram Highway, which is a critical part of Pakistan’s economic corridor with China, was shut down multiple times, for multiple days, due to landslides. These devastating landslides were a direct result of large-scale deforestation in the area north of Kohistan and south of Jaglot. Further north towards Shimshal and east towards the Skardu Valley, timber mafias are rapidly stripping old-growth forests, all but guaranteeing future environmental catastrophes.


Today, Pakistan is facing an existential crisis. The effects of climate change are not threatening a single sector or region of the country, but the lives and livelihoods of its entire population. As this year’s IPCC report underlined, we are, sadly, already too late to reverse the damage caused by the rampant consumption of fossil fuels. The choice we are facing now – in Pakistan and around the world – is to continue on a path to certain destruction, or start fighting for our collective survival.

Riaz Haq said...

Topline Securities
Advance Release of Foreign Trade Statistics:
Textile exports continue to grow, up 25% YoY. Rising petroleum imports remain a concern as they are up 87% YoY


Riaz Haq said...

#Remittances of $8 billion from #Pakistani diaspora in July-Sept 2022 quarter will pay for two-thirds of the $12 billion #trade deficit. #Pakistan government still needs to borrow over $4 billion to pay for the rest. https://www.dawn.com/news/1650949

Overseas Pakistanis sent the highest-ever $8 billion remittances during the first quarter of the current fiscal year, registering a growth of 12.5 per cent over the same period last year.

The State Bank of Pakistan (SBP) on Friday reported that with inflows of $2.7bn in September, workers’ remittances continued their strong momentum and remaining above $2bn since June 2020.

“This is the 7th consecutive month when inflows recorded around $2.7bn on average,” said the SBP. In terms of growth, remittances increased by 17pc in September compared to the same month last year, while comparing with August inflows it was 0.5pc higher.

The surging imports in 1QFY22 widened the trade deficit putting immense pressure on the rupee-dollar exchange rate which ultimately reflected in higher current account deficit. The situation for the economic managers is not comfortable except the higher remittance supported the economy beyond imagination.

The country had received record remittances of $29.4bn in FY21 which helped it curtail the current account deficit.

“The proactive policy measures by the government and SBP to incentivise the use of formal channels, curtailed crossborder travel in the face of Covid19, altruistic transfers to Pakistan amid the pandemic, and orderly foreign exchange market conditions have positively contributed towards the sustained improvement in remittance inflows since last year,” the central bank said in statement.

However, the deterioration of exchange rate has created serious problems for the external trade activities. Recently, the SBP has taken several measures to curtail outflow of dollars and reduce the import bill, but the exchange rate is still against the rupee which has lost about 11.5pc during the last five months.

The highest remittances were received from Saudi Arabia but they were 2.6pc less than the same period of last year. During July-September 2021-22 the remittances from Saudi Arabia were $2.025bn against $2.080bn last year. The contribution of Saudi Arabia in the total remittances during the first quarter of FY22 was almost 25pc. In September, Pakistan received $691m from the kingdom against $694m in the same month of last year.

The remittance from the United Arab Emirates was second highest as it witnessed a growth of 8.7pc while it amounted to $1.545bn during the first quarter of FY22.

The inflows from UK and USA noted a growth of 13.2pc and 32pc amounting to $1.115bn and $836m respectively. The growth in the first quarter of FY21 was 71.5pc for UK and 63pc for USA.

For the first time, the inflows from EU countries surpassed the total inflows from other GCC countries. The inflows from EU countries rose $889m compared to $880.7 from the GCC countries. The remittances from EU countries increased by 47.8pc compared to the same period of last fiscal year.