Europe seizes LNG and chokes off power supply to poorer countries

By Saeed Shah and Anna Hirtenstein

ISLAMABAD, July 7 (Wall Street Journal): The war in Ukraine is depriving far-flung developing countries of electricity, as the world’s supply of liquefied natural gas used to generate electricity is gobbled up by European nations as an alternative to Russian gas.

A tender from Pakistan for about $1 billion in liquefied natural gas attracted no bids on Thursday, Pakistani officials said. Every day, businesses and homes experience hours of government-mandated power cuts because the country cannot import enough natural gas to power power plants.

The price of LNG, which can be transported by ship around the world, has soared 1,900% from its low two years ago amid suppressed demand during the Covid-19 pandemic. Current prices are the equivalent of buying oil at $230 a barrel, more than double the current price of oil. LNG normally trades at a discount to oil.

LNG vessels operating off Karachi, Pakistan; Pakistani authorities have not generated interest in a new tender for around $1 billion in liquefied natural gas.

Developing countries often cannot compete with European countries for freight at such prices – around $40 per million British thermal units (MMBtu) – which means that the poorest countries from India to Brazil, reduce their LNG imports. Even China has reduced its purchases.

Bangladesh resorted to shutting off electricity during parts of the day. India has moved towards increased use of coal and domestic gas. In some cases, shipments due to poorer countries have been diverted to Europe, experts say, in what can be a profitable trade even if suppliers are forced to pay penalties under contracts with developing countries. development.

“Because of the war in Ukraine, every molecule available in our region has been bought by Europe, as they try to reduce their dependence on Russia,” Pakistan’s Oil Minister Musadik Malik said. .

LNG suppliers and traders have the choice of selling to more creditworthy European countries that are rushing to build up stocks before winter. Russia has reduced the amount of natural gas it sends to Europe through pipelines, in retaliation for sanctions imposed on Moscow by Western countries for its invasion of Ukraine.

“Russia could shut it down at any time,” said Caspian Conran, energy markets economist at Baringa, a London-based consultancy. “So we are desperately trying to reduce our dependence on this source of gas and global LNG offers the only real alternative that can be scaled up quickly.”

European countries increased their LNG imports by 49%, from the start of the year to June 19, according to data from Wood Mackenzie, an energy consultancy. In contrast, India’s imports fell by 16%, China by 21% and Pakistan by 15% during this period, he said.

“The gas crisis in Europe is drying up the LNG world,” said Valery Chow, head of Asia-Pacific gas and LNG research at Wood Mackenzie. “Emerging markets in Asia have paid the price and there is no end in sight.”

Robin Mills, managing director of Qamar Energy, a Dubai-based consultancy, said few new LNG supplies are expected to come on stream before 2025.

“It’s summer, a time of low demand for Europe,” Mr Mills said. “As we enter winter, especially if Russian gas is further reduced, this will be a very big problem for Europe and for other countries like Pakistan that depend on LNG.”

Islamabad has bid for 10 shipments – of 140,000 cubic meters each, worth more than $100 million per shipment – for delivery from July to September. He did not receive any offers by Thursday’s deadline, officials said. Three previous tenders for LNG cargoes in recent weeks have drawn just one bid, at $40 per MMBtu, well beyond the country’s means, officials said.

“These are unprecedented market conditions. But we will continue our efforts to secure the cargoes,” said Masood Nabi, managing director of Pakistan LNG Ltd., a state-owned company that imports natural gas and launched the tender.

Nearly a quarter of installed power plant capacity in Pakistan runs on LNG, according to official figures.

The country continued to receive LNG under a long-term contract with the Gulf country of Qatar, a close ally. However, deliveries due to Pakistan under longer-term contracts from two companies were not honored.

Eni SpA, an Italian energy company, has missed five shipments since August last year, while Gunvor Group, a Geneva-based commodities trading company, has failed to deliver seven shipments that were due since November, according to Pakistani officials. The price under those contracts would have been around $12 per MMBtu, Pakistani officials said.

The two companies agreed to pay the 30% penalty stipulated in the contract, Pakistani officials said. Islamabad is in talks with Eni to reschedule some of those deliveries, Pakistani officials said.

Eni said its own supplier did not supply it with the gas to resell in Pakistan. “Any disruptions in LNG delivery were beyond Eni’s reasonable control,” the company said. “Eni has not derived any benefit or profit from the situation and is currently assessing legal action against the failing supplier.”

Gunvor declined to say whether the cargo due to Pakistan had been sold elsewhere and whether it would pay a penalty to Pakistan.

“Any claim that Gunvor has failed in its obligations is false,” said Seth Pietras, Gunvor’s director of general affairs. “Gunvor is meeting all of its contractual obligations. The terms of the contract are confidential.

Natural gas is considered relatively less harmful to the environment than burning coal or oil, so compressing LNG supply could achieve green power goals.

“Some [poorer countries] consider switching to more polluting alternatives, using coal or liquid fuels. If the gas is too expensive, they will make the switch,” said Richard Bronze, head of geopolitics at London-based consultancy Energy Aspects.

–Vibhuti Agarwal and Sha Hua contributed to this article.

https://www.wsj.com/articles/europe-scoops-up-lng-choking-off-power-supplies-in-poorer-nations-11657212688?mod=lead_feature_below_a_pos1

Write to Saeed Shah at [email protected] and Anna Hirtenstein at [email protected]

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Rosemary C. Kearney