Coming gas price shock


It’s that time of the year when Pakistani consumers must brace for the usual upside shock in gas prices, not to mention sudden shortage of supply, because winter season is just round the corner. This is going to be the fourth year in a row that people have been told of inadequate gas supply even before the winter season has set in. This year the problem is compounded by record LNG prices in the international market, which currently stand at around $56.3 per million British thermal units (mmbtu). Pakistan paid slightly more than $20 per mmbtu for two LNG cargoes in September, and even then the price was at a record high.
One option to deal with the situation is to halt imports till the seasonal price bulge has passed, which is most likely what is going to be done considering the government’s fiscal constraints. The futures market shows LNG January contracts currently around $20-22 per mmbtu, but by then the bulk of the winter demand would have already passed, so the government would only subject itself to the usual too-little-too-late criticism. The other thing, which the government is already doing, is making electricity a little cheaper for people who will now have to turn on their electric heaters to see the winter through; especially in areas with persistent sub-zero temperatures where proper heating, or lack thereof, can even often make the difference between life and death.
But it remains to be seen just how much a reduction of Rs5-7 per unit on additional use of electricity compared to the same period (Nov-Feb) last year can really help people. The fact is that, as the government no doubt remembers, there was a gas crisis and subsequent shortfall last year as well, which forced people to turn to electric heaters, etc, so least year’s bills would also have been more inflated than usual. So there’s hardly going to be any meaningful compensation for consumers. This is going to put industry in a very difficult position as well. Already we are suffering to keep pace with competitors in certain sectors because of higher cost of production. And things like expensive electricity and gas do our products no favours in the international market.
There are no immediate solutions to such problems. But the real worry is that there isn’t anything on the table to suggest a long-term program either. Therefore the government has its work cut out for it if it really wants to impress voters with its performance.