Soaring Prices of Imported LNG Threaten Pakistan's Economic Recovery

[Riaz Haq]

Soaring LNG prices are adversely affecting Pakistan's balance of payments and threatening the nation's post-COVID economic recovery.  Pakistan's trade deficit has widened to nearly $12 billion in July-September 2021 quarter, up more than 100% from the same period last year. The nation's heavy reliance on expensive imported energy has been the main cause of prior balance of payments crises that have forced it to seek IMF bailouts more than a dozen times in the last 70 years. 

Global LNG Prices. Source: The Peninsula Qatar

Pakistan: World's Fastest Growing LNG Market. Source: Bloomberg

Global Commodity Price Increases

The average LNG price for November delivery into Northeast Asia was estimated at about $32 per metric million British thermal units (mmBtu), up nearly 20 percent from the previous week, according to the Peninsula Qatar publication. Price agency S&P Global Platts said on Thursday that its Japan-Korea-Marker, which is widely used as a benchmark for spot LNG contracts, rose to $34.47 per mmBtu.       

Pakistan Trade Stats. Source: Topline Securities

Rising LNG prices have forced power generating companies in Pakistan, Bangladesh and the Middle East to start switching fuels pushing oil prices higher.  About 60% of Pakistan's current LNG needs are covered by long-term contracts at significantly lower prices than the current spot prices. US crude closed above $80 for the first time since late in 2014, bringing its climb since the end of last October to 125%, according to the Wall Street Journal. 

Pakistan Coal Power Plants Under CPEC. Source:China's Global Power ...

All Pakistani Power Plants Under CPEC. Source: China's Global Power...

The key to Pakistan managing its current accounts lies in reducing reliance on imported energy and dramatically increasing its exports. Pakistan already faces climate change pressures forcing it to change its energy mix to reduce the use of fossil fuels. 

Pakistan's Malik Amin Aslam with CNN's Becky Anderson

Malik Amin Aslam, Pakistan Prime Minister Imran Khan's special assistant on climate change, said recently in an interview with CNN that his country is seeking to change its energy mix to favor green.  He said Pakistan's 60% renewable energy target would to be based on solar, wind and hydro power projects, and 40% would come from hydrocarbon and nuclear which is also low-carbon. “Nuclear power has to be part of the country’s energy mix for future as a zero energy emission source for clean and green future,” he concluded. Here are the key points Aslam made to Becky Anderson of CNN:

1. Pakistan wants to be a part of the solution even though it accounts for less than 1% of global carbon emissions. 

 2. Extreme weather events are costing Pakistan significant losses of lives and property. Pakistan is among the countries most vulnerable to the effects of climate change. 

3. Pakistan is moving towards renewable energy by converting 60% of its energy mix to renewable by 2030. Electric vehicle (EV) transition is also beginning in his country. 

4. Aslam said:  “We are one of the world leaders on nature based solutions. However, the World Bank (WB) in its Report yesterday came up with really good numbers in a comparison done of countries who are shifting their mainstream development towards environment friendly policies and Pakistan came atop among them,” the SAPM explained. 

900 MW Zonergy Solar Park in Bhawalpur, Pakistan

To a question on Pakistan’s capacity to make investments in nature based solutions, he said, “We cannot afford not to do it….that’s a cliche in our country and we are living that cliche in Pakistan. We are not just talking the climate talk rather doing climate action in Pakistan.” 

1,100 MW Karachi Nuclear Power Plant Unit 2

To a question on the 26th Conference of Parties (COP-26) under the United Nations Framework Convention on Climate Change, Amin said his country’s revised "national determined contributions" (NDCs) are going to be released next week. “….that’s going to clearly tell the world that this (money) we had spent in nature and could do further and that was also our direction,” he added. The SAPM informed that Pakistan was going to COP 26 with a very clear message that the country has been affected by climate change, climate injustice, adding, “but we are one of the countries that are leading the way to nature based solutions.” 

Pakistan Among Top 3 Countries For Newly Installed Hydro

He cited the WB Report and said 44% of the country’s mainstream development was climate friendly investment and it had doubled in the past one year. He said 60% renewable energy target would to be based on solar, wind and hydro power projects, and 40% would come from hydrocarbons and nuclear which is also low-carbon. “Nuclear power has to be part of the country’s energy mix for future as a zero energy emission source for clean and green future,” he concluded.

Installed Wind Power in Pakistan. Source: Modor Intelligence

It's noteworthy that Pakistan's neighbor India currently generates 70% of its electricity from coal extracted from Indian coal mine.  It is aiming for renewables and nuclear energy to account for 40% of its installed electricity capacity by 2030.   

Pakistan NDCs (Nationally Determined Contributions) For Climate Goa...

Here's a video of Malik Amin Aslam's interview with CNN"s Becky Anderson:

https://youtu.be/Q_s4kQXChuM

https://www.youtube.com/embed/Q_s4kQXChuM"; title="YouTube video player" width="560"></iframe>" height="315" src="https://img1.blogblog.com/img/video_object.png" width="560" style="cursor: move; background-color: #b2b2b2;" />

Related Links:

Haq's Musings

South Asia Investor Review

Pakistan's Debt Crisis

Declining Investment Hurting Pakistan's Economic Growth

Rooftop Solar Net Metering Growth in Pakistan 

Can Pakistan Avoid Recurring IMF Bailouts?

Pakistan is the 3rd Fastest Growing Trillion Dollar Economy

CPEC Financing: Is China Ripping Off Pakistan?

Pakistan Ramps Up Nuclear Power Generation

Is Pakistan Ready For Clean Energy Revolution?

China Global Power Database on Power Plants in Pakistan

CPEC Transforming Pakistan

Pakistan's $20 Billion Tourism Industry Boom

Pakistan Among Top 3 Countries For New Hydro Installed Capacity

Riaz Haq's YouTube Channel

PakAlumni Social Network

[Riaz Haq]

Strong #US #Dollar Spells Trouble for World #Economy. Its rise being felt in #fuel and #food shortages in #SriLanka, in #Europe’s record #inflation, in #Japan’s exploding #trade deficit, #Pakistan's #IMF bailout and #Bangladesh seeking IMF help https://www.wsj.com/articles/dollars-rise-spells-trouble-for-global... via @WSJ

For the U.S., a stronger dollar means cheaper imports, a tailwind for efforts to contain inflation, and record relative purchasing power for Americans. But the rest of the world is straining under the dollar’s rise.

“I think it’s early days yet,” said Raghuram Rajan, a finance professor at the University of Chicago’s Booth School of Business. When he served as governor of the Reserve Bank of India last decade, he complained loudly about how Fed policy and a strong dollar hit the rest of the world. “We’re going to be in a high-rates regime for some time. The fragilities will build up.”

-------------

The U.S. dollar is experiencing a once-in-a-generation rally, a surge that threatens to exacerbate a slowdown in growth and amplify inflation headaches for global central banks.

The dollar’s role as the primary currency used in global trade and finance means its fluctuations have widespread impacts. The currency’s strength is being felt in the fuel and food shortages in Sri Lanka, in Europe’s record inflation and in Japan’s exploding trade deficit.

This week, investors are closely watching the outcome of the Federal Reserve’s policy meeting for clues about the dollar’s trajectory. The U.S. central bank is expected Wednesday to raise interest rates by at least 0.75 percentage point as it fights inflation—likely fueling further gains in the greenback.

In a worrying sign, attempts from policy makers in China, Japan and Europe to defend their currencies are largely failing in the face of the dollar’s unrelenting rise.

Last week, the dollar steamrolled through a key level against the Chinese yuan, with one dollar buying more than 7 yuan for the first time since 2020. Japanese officials, who had previously stood aside as the yen lost one-fifth of its value this year, began to fret publicly that markets were going too far.

The ICE U.S. Dollar Index, which measures the currency against a basket of its biggest trading partners, has risen more than 14% in 2022, on track for its best year since the index’s launch in 1985. The euro, Japanese yen and British pound have fallen to multidecade lows against the greenback. Emerging-market currencies have been battered: The Egyptian pound has fallen 18%, the Hungarian forint is down 20% and the South African rand has lost 9.4%.

The dollar’s rise this year is being fueled by the Fed’s aggressive interest-rate increases, which have encouraged global investors to pull money out of other markets to invest in higher-yielding U.S. assets. Recent economic data suggest that U.S. inflation remains stubbornly high, strengthening the case for more Fed rate increases and an even stronger dollar.

Dismal economic prospects for the rest of the world are also boosting the greenback. Europe is on the front lines of an economic war with Russia. China is facing its biggest slowdown in years as a multidecade property boom unravels.

[Riaz Haq]

Strong #US #Dollar Spells Trouble for World #Economy. Its rise being felt in #fuel and #food shortages in #SriLanka, in #Europe’s record #inflation, in #Japan’s exploding #trade deficit, #Pakistan's #IMF bailout and #Bangladesh seeking IMF help https://www.wsj.com/articles/dollars-rise-spells-trouble-for-global... via @WSJ

For the U.S., a stronger dollar means cheaper imports, a tailwind for efforts to contain inflation, and record relative purchasing power for Americans. But the rest of the world is straining under the dollar’s rise.

“I think it’s early days yet,” said Raghuram Rajan, a finance professor at the University of Chicago’s Booth School of Business. When he served as governor of the Reserve Bank of India last decade, he complained loudly about how Fed policy and a strong dollar hit the rest of the world. “We’re going to be in a high-rates regime for some time. The fragilities will build up.”

-------------

-------
On Thursday, the World Bank warned that the global economy was heading toward recession and “a string of financial crises in emerging market and developing economies that would do them lasting harm.”

The stark message adds to concerns that financial pressures are widening for emerging markets outside of well-known weak links such as Sri Lanka and Pakistan that have already sought help from the International Monetary Fund. Serbia became the latest to open talks with the IMF last week.

“Many countries have not been through a cycle of much higher interest rates since the 1990s. There’s a lot of debt out there augmented by the borrowing in the pandemic,” said Mr. Rajan. Stress in emerging markets will widen, he added. “It’s not going to be contained.”

A stronger dollar makes the debts that emerging-market governments and companies have taken out in U.S. dollars more expensive to pay back. Emerging-market governments have $83 billion in U.S. dollar debt coming due by the end of next year, according to data from the Institute of International Finance that covers 32 countries.

[Riaz Haq]

Stephen Stapczynski

Europe needs "immediate action" to avoid a natural gas shortage in 2023, says theIEA


Europe faces a 30bcm shortfall next summer in gas needed to fuel its economy AND sufficiently refill storage
Next year's challenge: lower Russian supply, higher Chinese LNG demand

[Riaz Haq]

Pakistan plans to push coal-fired power to 10 GW, shift away from gas

https://www.gastopowerjournal.com/markets/item/13377-pakistan-plans...

Soaring fuel prices have made Pakistan move away from importing LNG and use domestic lignite to generate electricity instead. “LNG is no longer part of the long-term plan,” Pakistan’s energy minister Khurram Dastgir Khan told Reuters, revealing targets to increase coal-fired capacity to 10 GW, up from currently 2.31 GW, and build no more gas-fired power plants.