Pakistan's depleting forex reserves to hamper LNG imports

Pakistan's dwindling foreign exchange reserves are likely to curb its ability to import more LNG on the spot market especially with spot Asian LNG prices now trading above $35/MMBtu, and key state importers running into huge losses, according to analysts and traders.

State-run Pakistan State Oil, the main importer of petroleum products including LNG, is already finding it difficult to make timely imports as energy prices have surged on the back of the Russia-Ukraine war. Downstream gas customers like power utilities and natural gas distributors like Sui Northern Pipeline owe Pakistan State Oil billions in unpaid dues.

Pakistan's foreign exchange reserves have depleted at an alarming pace, with State Bank of Pakistan, or SBP's, foreign exchange reserves falling by $11.088 billion to $8.985 billion, from Sept. 1, 2021, to June 10, 2022, the central bank's data showed.

Analysts say this is the lowest level of reserves held by the bank since at least 2019, and only enough to cover less than six weeks of imports. Pakistan's total commodity imports including petroleum products and LNG amounted to $6.6 billion in May alone, according to official data.

Petroleum products accounted for around 40% of this monthly import bill at around $2.645 billion, of which $1.473 billion was petroleum products, $538 million was crude oil and $583 million was LNG, official data showed.

In the 10 months ended May 31, the value of petroleum products inflows jumped 99% year on year to $10 billion, crude oil imports surged 126% to $4.759 billion and LNG imports were up by 75% to $4.289 billion, data from the Pakistan Bureau of Statistics showed.

Meanwhile, according to data from National Electric Power Regulatory Authority, the cost to produce electricity from fuel oil in April shot up by 134% to Pakistan Rupees 28.19/unit, by 66% to Rupees 16.43/unit for regasified LNG and by 79% to Rupees 14.34/unit for coal-fired electricity.

Pakistan's ability to import LNG is further impacted by the steep depreciation of its currency, which has plunged by about 13.7% since April, making imports costlier and putting more pressure on the national exchequer.

To resolve its balance of payment crisis, the cash-strapped country is tapping friendly nations for loans, with local media citing ministers saying cash inflows were expected from the United Arab Emirates and China, and an $8 billion package from Saudi Arabia could entail an expanded oil financing facility.

Pakistan also held talks with the International Monetary Fund in May to tap into a previously halted funding scheme, but the IMF said Islamabad would need to lift its recent fuel and energy subsidies to meet lending program objectives.

Since a Feb. 28 cut in petrol and diesel prices, which forced state-owned companies to sell fuel at prices substantially lower than the import price, Pakistan has attempted to increase prices to close its fiscal deficit but the measures have not been enough.

It remains unclear how Islamabad will alleviate its payments crisis, which if not resolved in time could create energy crisis seen in some other countries.