Pakistan to sell excess LNG amid supply glut

Pakistan is exploring ways to sell excess liquefied natural gas (LNG) cargoes amid a gas supply glut that could cost domestic producers US$378 million in annual losses, reports Reuters.

The country has at least three LNG cargoes in excess that it imported from top supplier Qatar and has no immediate use for, and is currently selling natural gas at steep discounts to local users.

Power generation from gas-fired power plants, which has historically accounted for a lion's share of LNG use in the country, has declined for three straight years ended 2024, with cheaper solar power use dramatically gaining at the expense of gas-fired generation, data from energy think-tank Ember showed.

Pakistan is currently exploring the possibility of transferring LNG cargoes to rented tankers for "offshore storage and onward sale," state-owned oil and gas producer OGDCL said in a presentation to industry and government.

"Excess LNG in the gas network has resulted in significant production operations impact for local exploration and production companies over last 18 months," OGDCL said, adding that it had forced curtailment of domestic supply.

The domestic industry could suffer US$378 million in losses over the next 12 months at the current rate of curtailment, according to the presentation dated May 29 reviewed by Reuters.

It is not immediately clear if Pakistan's long-term LNG import contracts with QatarEnergy allows for a resale of cargoes. One of the government officials said the country was still exploring ways to do it.

Qatar typically has a destination clause in long-term supply contracts with buyers that restrict where the cargoes can be sold.

Pakistan has already deferred five contracted LNG cargoes from Qatar without financial penalty, shifting delivery from 2025 to 2026, as the country grapples with surplus capacity.

Pakistan's petroleum minister Ali Pervaiz Malik declined to comment on the presentation, but said renegotiating contracts with Qatar was a "complex" process that could take at least a year, and a final decision on initiating it had yet to be made.

"While the existing contract with Qatar allows Pakistan to decline vessels, doing so incurs penalties and other complications," Malik told Reuters.

The glut has stemmed from several gas-fired power plants, previously operating under must-run contracts, now being sidelined, Malik said.

"It was expected that summer season will create extraordinary demand but the trend indicates the opposite," OGDCL said in the presentation.

 

OPEC plus leaning towards oil cut extension

According to media reports, OPEC and allies (OPEC plus) are leaning towards delaying next year’s planned increase in oil output to support the market during the second wave of COVID-19 and rising Libyan output, despite a rise in prices.

OPEC plus was due to raise output by 2 million barrels per day (bpd) in January 2021, about 2% of global consumption as it moves to ease this year’s record supply cuts. With demand weakening, OPEC plus has been considering delaying the increase.

Russia is likely to agree on a rollover of current output for the first quarter if needed, a source familiar with the issue said, and would prefer to decide later on extending for the second quarter.

“It looks like the extension is needed,” the source said, citing “possible price drops and demand uncertainties” amid the second wave of the virus.

Oil has rallied in the past weeks, rising to its highest since March this year, near US$49 a barrel, on hopes that coronavirus vaccines will lead to higher demand. This hasn’t changed OPEC plus thinking around the extension.

 “This increase in prices is about sentiment, but we need to extend to have solid market fundamentals to support the prices,” said one. “So far, the best choice is the three-month extension.”

Still, enthusiasm for extended cuts is not universal, delegates and analysts say.

A potential complication is the United Arab Emirates’ wish for a higher OPEC plus quota, Goldman Sachs said this week.

Nigeria also wants a higher quota, and Iraq has talked about being exempt from 2021 reductions.

Goldman said it did not expect such a push from the UAE to derail the extension, and Iraq has said it will support any unanimous OPEC plus decision.

There are several technical meetings this week to prepare the ground for ministerial gatherings on Monday and Tuesday. All meetings are virtual due to the pandemic.

Christyan Malek, Managing Director and Head of oil & gas research at J.P. Morgan, said he expected OPEC+ plus to delay the increase by up to six months despite the price rally, with Saudi Arabia possibly offering deeper voluntary cuts until March next year.

“Inventories are not coming down as quickly as expected. Lockdowns are moving east to west, with more lockdowns expected in the US,” he said.

Malek said the departure of Donald Trump as US President, who was seen by some in OPEC as a friend after he helped bring Russian President Vladimir Putin into the OPEC plus output cut in April, would actually boost the producer alliance.

“Without Trump, OPEC plus is getting stronger rather than weaker,” he said. “Putin is using OPEC plus to get closer to Saudi Arabia, as the departure of Trump creates a bit of a vacuum in the US-Saudi relations.”

According to another report, Saudi Arabia and Russia summoned OPEC plus ministers who oversee their oil production cuts for last-minute talks on Saturday, as the cartel prepares for a decision on whether to delay January’s output increase.

A clear majority of OPEC plus watchers expect the group to maintain their supply curbs at current levels for a few months longer due to lingering uncertainty about demand. However, the decision is by no means certain amid public complaints from Iraq and Nigeria, and private discord with the United Arab Emirates.

The two leading members of OPEC and its allies, Russia’s Deputy Prime Minister Alexander Novak and Saudi Energy Minister Abdulaziz bin Salman, requested an informal video conference with their counterparts from the Joint Ministerial Monitoring Committee, which includes Algeria, Kazakhstan, Iraq, Nigeria and the UAE, according to a letter seen by Bloomberg.

The unscheduled gathering comes just two days before a full OPEC ministerial meeting on November 30, which will be followed by OPEC plus talks on December 01. The JMMC met online as recently as November 17, but that ended without any kind of recommendation about delaying the January supply increase.

On Thursday, Algerian Energy Minister Abdelmadjid Attar, who this year holds OPEC’s rotating presidency, told Bloomberg that the group must remain cautious because the recent surge in oil to US$45 a barrel in New York could prove fragile.

A separate meeting of a committee of OPEC technical experts considered data that pointed to the risk of a new oil surplus early next year if the cartel and its allies decide to go ahead with the production increase. The 23-nation OPEC plus is scheduled to ease its 7.7 million barrels a day of production cuts by 1.9 million barrels a day from January 01, 2021

Dismal Performance of Pakistani Fertilizer Companies

Pakistan Stock Exchange enjoys substantial foreign investment. With the commencement of results season investors await earnings forecast/results anxiously. Listed fertilizer manufacturing companies have always remained in focus. Previews financial results of the two leading fertilizer manufacturing companies namely Fauji Fertilizer Bin Qasim (FFBL) and Engro Fertilizer (EFERT) for July-September 2016 quarter (3QCY16) exhibits a dismal picture.

FFBL is scheduled to announce its results on 24th October. According to a report by AKD Securities, the Company is forecast to post profit after tax of Rs127 million for 3QCY16 as compared to net profit of Rs181 million for 3QCY15, down 30%YoY. This decline in earnings is expected on the back of: 1) gross margin of company declining to 18% (including subsidy) on account of significant reduction in DAP prices. There has been a decline of 14%YoY due to depressed international price trends. There has also been a decline of 81%YoY in other income (excluding subsidy) in the absence of dividend from associated companies (AKBL & FCCL) and reduction in term deposit placements. The brokerage house expect the Company to post net profit of Rs127 million (EPS: Rs0.14) for 3QCY16 as against a net loss of R381 million (LPS: Rs0.41) on the back of 60%QoQ growth in topline to Rs11.91 billion caused by likely 50%QoQ/36%QoQ increase in DAP/Urea offtake to 143,000/164,000 tons post-subsidy announcement in budget FY17. On a cumulative basis, the brokerage house expects FFBL to post net loss of Rs768 million (LPS: Rs0.82) for 9MCY16 as against a net profit of Rs939 million (EPS: Rs1.01) for 9MCY15. While core business outlook remains bleak, FFBL's impressive diversification strategy and investment in dividend yielding group companies (AKBL & FCCL) is likely to drive earnings of the Company. 

EFERT is scheduled to announce its quarterly financial results on 25th October. The Company is expected to post profit after tax of Rs2.98 billion (EPS: Rs2.24) for 3QCY16 as against net profit of Rs2.79 billion (EPS: Rs2.10) for 3QCY15. The recovery in earnings is expected on the back of: 1) strong 51%YoY growth in topline to Rs21.01 billion caused by likely 39%YoY increase in Urea offtake to 502,000 tons post-subsidy in budget FY17 and 2) a 28%YoY decrease in finance cost on account of swift deleveraging and low interest rate environment. On a cumulative basis, projected earnings for 9MCY16F are to be around Rs5.77 billion (EPS: Rs4.34) as compared to Rs9.91 billion (EPS: Rs7.44) for 9MCY15, down 41%YoY on account of unprecedented adverse market conditions caused by weak farm economics (urea offtake: down 16%YoY in 8MCY16) and delayed implementation of subsidy on urea by the GoP. Moreover, on the arrival of Rabi season, manufacturers are offering hefty dealer discount to clear out high inventory levels.