Pakistani failed state shows Aussie gas market the way

The Pakistani failed state is showing Aussie gas consumers the way forward:

Pakistan LNG Limited said Tuesday it has secured a record low price for a spot liquefied natural gas (LNG) cargo from Azerbaijan’s SOCAR, Kallanish Energy reports.

According to a final tender evaluation report, dated July 28, SOCAR has offered the lowest bid at 5.73% of Brent. This is the equivalent to roughly $2.2 per million British thermal units, Pakistan LNG said.

The undisclosed cargo will be delivered on Aug. 27-28, contracted at a delivered ex-ship basis.

The Pakistani state-owned LNG firm also received quotes from other three suppliers. The bid from Trafigura was the “least advantageous” at a rate of 10.38% on Brent oil prices, followed by 8.35% from PetroChina and 7.84% from Gunvor.

Asian LNG spot price LNG-AS for August delivery was estimated at around $2.35/MmBtu last Friday.

Pakistan LNG has been mandated by the Pakistani government to carry out the business of buying, importing, storing LNG, distributing, transporting, metering and selling of natural gas.

PetroChina has gas reserves in QLD and WA, among other places, and it is selling gas to the Pakis for 8.35% of Brent, or roughly $3GJ plus change in local terms.

Yet Australia’s large scale gas consumers on the east coast typically pay 14% of Brent:

This is purely because the local gas cartel gives the gas away overseas in order to keep the price astronomical at home. That is literally its business model.

But there is a part solution, offered up the Paki’s approach. It has nothing to with Narrabri and the toxic Santos. On the contrary, gas consumers of scale should tell it to politely #$%^ off.

Instead, they should commit to LNG imports at scale. Make just enough commitment to the import plants in contract terms (which will be a high % to Brent price) to get them off the ground. Then buy the majority of gas volumes at Asian spot. They should get together to do it to ensure no one customer has to overcommit to contract volumes to get access to the cheaper spot prices.

Today that spot gas would arrive at $3Gj and change. Across the cycle, I don’t think it will do much more than double that. The global glut is staggering:

The best part about it is the local consumers of gas will often be buying Aussie gas cartel volumes anyway, only at cratered Asian spot prices instead of the outrageous gouge prices that they are charging at home, shipped in rather than piped.

It is a far better solution than $10Gj Narrabri gas that will be sold on 14% Brent contracts as the toxic Santos shifts other, displaced volumes offshore to keep the market tight.

David Llewellyn-Smith
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Comments

  1. Predicition: The ACCC will claim a buyer’s collective to be anti-competitive because it collectively sets wholesale gas and electricity prices at the margin amongst competitors.

    Why?: The ACCC hates AGL more than Shell and Santos.

  2. Is that the great Zaheer Abbas on the pic? Only man to score a double century and a century in a First Class match 4 times.