Gas crisis deepens as LNG cargo from Azerbaijan may not land in January 2024

The gas crisis in the country is expected to worsen during the peak winter month, with officials from the Energy Ministry revealing that a distressed LNG cargo from SOCAR, a state-owned company of Azerbaijan, may not be available in January 2024.

Prior to the potential non-provision of the LNG cargo, the country was already facing an estimated gas shortfall of 360 million cubic feet per day (MMCFD) in December 2023, projected to escalate to 470 MMCFD in January 2024. Despite efforts to address the issue by restricting gas availability to the domestic sector for only 8 hours during cooking times, the situation is anticipated to deteriorate further.

Now, with the expected non-availability of the SOCAR cargo, the government is contemplating further reductions in gas availability to the domestic sector, potentially limiting it to just 6 hours. Officials noted that indications from SOCAR suggest challenges in offering a price for the distressed LNG cargo in January.

The gas supply situation is tied to a previous agreement made during the government tenure led by former Premier Shehbaz Sharif, involving a Gas-to-Gas (GtG) deal with SOCAR. The agreement obliges SOCAR to provide one LNG cargo per month.

A one-year agreement was inked between Pakistan and Azerbaijan on July 25, 2023, with the option to extend for another year. According to the agreement, SOCAR Trading Company-UK is expected to offer one LNG cargo 45 days before the start of the relevant delivery window.

However, concerns are rising as SOCAR appears hesitant to offer the LNG cargo for January, potentially due to challenges in distressed LNG availability and the resurgence of Western economies. Officials pointed out that SOCAR is bound to offer 45 days before the delivery, leaving a window for a possible offer. 

Pakistan LNG Limited (PLL) is also in the process of planning tenders for spot cargoes for January, seeking exemptions from response time and bid validity time under PPRA rules.

The government had previously secured LNG cargoes through bids, and while market players are speculating on potential bids for January, officials clarified that the process used to purchase a cargo from SOCAR was separate, and the company had offered its price independently.

The gas deficit projections indicate challenges in both the Sui Southern and Sui Northern systems, with a significant increase expected in January 2024. The shortfall in local gas production, decreasing by 9-10 percent annually, adds to the complexities of the situation. 

Plans are in place to receive four-term cargoes from Qatar starting January 2024, providing some relief, but the immediate concerns surround the potential exacerbation of the gas crisis due to the non-availability of the SOCAR LNG cargo.