|  | 

Brokerage

AKD Securities Limited Equity Research – Daily Report (September 22, 2022)

Karachi, September 22, 2022 (PPI-OT): Pakistan OMC’s: LNG still soaring; refining margins tank

With the Ukraine-Russia conflict proving to be detrimental to pipeline-quality natural gas supply, particularly to Europe, the race to procure RLNG has seen unprecedented vigour.

Ever since buyers from Europe have entered the RLNG market, Asian countries like Pakistan have found it tough to outbid them in the race to procure the much sought-after vessels

In this backdrop, Pakistan LNG Limited, one of the two RLNG importers in the country, has only procured 2 cargoes in past three months, as its long term supply contracts are not being upheld by suppliers in Italy (ENI) and Switzerland (Gunvor).

Global prices of diesel and petrol continue to fall sharply, down 41% and 29% from peaks in June’22, to stand at $US91/123 per bbl. for Gasoline/Gasoil, respectively (source: Singapore Refined product PLATTS).

In the near term, refined product supply and demand are expected to remain neck-to-neck in the near term, as total refining capacity deficit stands at 3.8mn bpd in Sept’22.

Scrambling for LNG:

With the Ukraine-Russia conflict proving to be detrimental to pipeline- quality natural gas supply, particularly to Europe, the race to procure RLNG has seen unprecedented vigour. Ever since buyers from Europe have entered the RLNG market, Asian countries like Pakistan have found it tough to outbid them in the race to procure the much sought-after vessels. While European market dynamics have improved recently with regard to storage capacities, the worst could be yet to come should cold weather and falling Russian pipeline flows push LNG demand higher.

Analysts covering LNG markets suggest that Europe is expected to throw everything it has got in securing limited LNG supplies over the next few years, while Asian demand response is not expected to die anytime soon either.

LNG dynamics in Pakistan:

In this backdrop, Pakistan LNG Limited, one of the two RLNG importers in the country, has only procured 2 cargoes in past three months, as its long term supply con- tracts are not being upheld by suppliers in Italy (ENI) and Switzerland (Gunvor), amid the ongoing gas shortage in Europe. Contractual defaults, which have been ongoing for 9 months now, have forced the state-owned entity to procure LNG from the spot market at high prices ranging any- where between $12-25/MMBTU, with some contracts even trading at as high as US$60/MMBTU.

With receiving bids in the spot market already being an herculean task, procuring LNG haphazardly also results in high volatile purchase costs, disruption in energy supply chain, and additional costs per mmbtu in case the LNG storage terminal/pipelines go unutilized (courtesy of take-or-pay agreements).

Meanwhile, six cargoes from PSO’s long-term G2G arrangement with Qatar Gas continue to power through at Brent slope 13.37%, while 2 additional cargoes at 10.2% slope resulted in average price to stand at $13.4/mmbtu for Sept’22. With gas price revisions around the corner, the increased collection rate is expected to benefit most of the energy chain, majorly OGDC/PPL/ PSO. Although, with the much-dreaded winter approaching, putting a cap on the gas-sector circular debt in the near term seems to be a long haul.

Falling margins; stretched global capacities:

Global prices of diesel and petrol continue to fall sharply, down 41% and 29% respectively from peaks in June’22, majorly due to rising concerns of a global recession emanating from Western/European front, to stand at $US91/123 per bbl. for Gasoline/Gasoil respectively (source: Singapore Refined product PLATTS). Similarly, crack spreads continued to decline on expectations of weaker demand in future amid several warning signals (US Fed tightening, immediate recessionary fears in Europe).

Furthermore, China’s Govt’ is expected to issue a refined product export quota soon, majority being diesel, signalling a weakening outlook for oil/petroleum demand for Asia’s largest economy. Be that as it may, refining capacities still remain short due to mass-closures since 2019 on the western front (COVID slowdown/ climate change concerns) and avoidances of Russian exports by European buyers. Refined product supply and demand are expected to remain neck-to-neck in the near term, as global refining capacity deficit stands at 3.8mn bpd in Sept’22.

akd-securities-limited-equity-research-daily-report-september-22-2022

ABOUT THE AUTHOR

POST YOUR COMMENTS

Categories

ARCHIVES