AKD Securities Limited Equity Research - Daily Report.

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...