AKD Securities Limited Equity Research – Daily Report

Karachi, December 07, 2018 (PPI-OT): Pakistan Energy: Those not busy being born are busy dying

Short-termism has routed the power chain, where reactionary measures burdening the space include: 1) closure of FO generation base leading to inventory pile ups at refiners, 2) RLNG supply under debate with possible extension of supplies to households, and 3) continuing buildup of circular debt where clearance measures are yet to be enacted.

Analyzing CYTD HSFO and HSD cracks to Brent, we highlight the lack of movement in HSD prices relative to Brent illustrating expanding premium, whereas HSFO trades at discounts, limiting its feasibility for export. In short, deviations in cracks could limit refined fuel price movements for national OMCs.

RLNG on the other hand has expanded its footprint in the country’s energy mix with quantum of imports rising 92%YoY, as shipments on spot basis through PLL have reduced the overall LNG DES price slope to 13.02% (vs. 13.37% under long term agreement), translating into saving of US$34.3mn FYTD, all the more meaningful as policy measures to expand supply beyond power and industry inevitably raise losses.

Crude benchmarks in the run up to OPEC’s current meet indicate softness, as non-OPEC producers expand production, indicating a possible break in the cartel’s hold on global crude prices.