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Pakistan cuts April LNG shipments amid growing risks to South Asian gas demand

Highlights

Pakistan cuts April LNG cargo deliveries from Qatar to 3 from 5

Bangladesh lockdowns pose threat to economy, LNG imports

South Asia LNG import growth in 2020 likely to be wiped out

Singapore — Pakistan has cut its April LNG cargo deliveries as the country's coronavirus lockdown eats into domestic natural gas consumption, while Bangladesh could be the next country in South Asia to push back on LNG shipments after it introduced a lockdown last week.

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Nationwide closures now pose major risks to South Asia's LNG imports after a 21-day shutdown prompted Indian gas companies and ports to make force majeure declarations last week, raising concerns about surplus cargoes being dumped on the spot market.

Pakistan has long-term contracts for the import of eight LNG cargoes per month on a take-or-pay basis, and out of these five are from Qatar, a government spokesman said, adding that the Qatari volumes had been reduced to three cargoes for April through mutual discussion, without invoking any force majeure.

"COVID-19 pandemic has resulted in reduced gas demand in Pakistan like many other countries," the spokesman said. "Lower gas consumption has posed challenges for the LNG supply chain like increased line-pack in the transmission system and the possibility of attracting heavy financial penalties/demurrages in case of delays in receiving LNG cargoes or cancellation of cargoes."

Line-pack refers to the amount of pressurized gas being transported through the pipeline system and higher density means full transmission capacity has been reached. Demurrage is the loss incurred on chartering a vessel for longer than the agreed duration, typically caused by delays in shipments.

"All possible steps are being taken to ensure energy supply chain is maintained while also keeping financial losses at the minimum," the spokesman said.

Both Pakistan and Bangladesh have long-term LNG contracts with Middle East suppliers and market participants are worried about the activation of more downward quantity tolerances, or DQTs, that allow buyers to reduce contracted purchases.

Unsold cargoes are already bearish for Asian spot LNG prices. The S&P Global Platts JKM price for May deliveries was assessed down 8.8 cents/MMBtu at $2.797/MMBtu Friday, and looks to be headed to record lows in the coming days.

"Our forecast for growth in Pakistan and Bangladesh, assuming no COVID-19 outbreak impact, was an average of 8 million cu m/d from April through June over the same period last year," Jeff Moore, manager for Asian LNG at Platts Analytics, said.

"This is about 17% growth year over year. I think it's likely that the majority of this growth will be wiped out and we could see some year-over-year declines for the next few months across South Asia," he added.

Pakistan, Bangladesh LNG imports

Demand destruction

Last week, Pakistan's provinces imposed varying degrees of travel restrictions, with the oil ministry instructing oil marketing companies and refiners to suspend planned imports for gasoline and crude oil due to low demand. No official announcements on LNG imports have been made so far.

Separately, Bangladesh imposed restrictions on the movement of people from March 26, and also closed all government and private offices for a 10-day period, raising concerns about a decline in economic activity.

Unlike in India, Bangladesh's Chattogram port, where the Summit FSRU is located, will continue to berth vessels, provide pilotage services and conduct cargo loading and unloading activities, but it will impose quarantines for sailors, port services provider GAC said in an advisory on Friday.

Moore said assuming the lockdowns are effective in stemming the spread of the virus, demand is likely to pick up relatively quickly as there are stranded power and industrial assets that will need supply.

"However, with restrictions on port activities and less overall activity, it looks like imports will be impacted in the near term," Moore added.

The South Asian countries of Bangladesh, India and Pakistan have been key to absorbing surplus LNG volumes and were set to add more than 40 Bcm/year of incremental natural gas consumption by 2024, according to the International Energy Agency.

Of the three, Bangladesh is the newest LNG importing country, with imports starting in 2018 under long-term contracts between state-run Petrobangla and Qatar's Rasgas and Oman Trading International.

State-run gas distributor Rupantarita Prakritik Gas Company Ltd, or RPGCL, had been in talks to tap spot markets before the oil price collapse, but is now likely to factor in a sharp drop-off in demand due to the coronavirus-triggered lockdown.

More than half of Bangladesh's natural gas demand comes from the power sector, according to the IEA. Natural gas accounts for around 61% of its power mix.

Bangladesh has been seeing strong growth in industrial gas demand and its fertilizer, textile and leather sectors were expected to account for almost 30% of total natural gas demand by 2024. This could be temporarily jeopardized depending on how severely its economy contracts in the coming weeks and months.