Islamabad, December 05, 2020 (PPI-OT): This is in reference to a program on electronic media and news stories appearing in newspapers of the same media house related to the Press Release issued by Petroleum Division on December 4th, 2020. This reporting clearly exposes complete lack of understanding of pricing of LNG by those who profess to be experts. The Press Release talks about JKM swaps spreads of $5.5 USD/mmbtu on October 2nd for delivery in December and indicates that these spreads were only 10 cents/mmbtu less in mid-August. Nowhere did the Petroleum Ministry say that this was the price at which Pakistan could have bought the LNG.
Not knowing what JKM or Swap Spreads mean, the news report took this as admission of price at which Pakistan could have bought LNG. JKM stands for Japan Korea Marker, which is an index used for LNG trading in North Asia. Pakistan buys LNG on Brent linked basis and not on JKM. While Brent has a forward curve, there is no liquid forward market for Brent linked slope for LNG.
As a result, if a customer wants a forward delivery but wants to use Brent linked index, then the forward curve of JKM can be used as proxy to derive the slope. Since no liquid forward market of Slope is available, the only reason Petroleum division mentioned JKM was to show that the difference in Swap Spreads from August to October was 10 cents in North Asia as a proxy of what would have happened in Pakistan.
Delivery location and Port charges are additional costs. Once a slope is derived, it is linked to Brent and the actual Brent applicable to the delivery month is used at the time of delivery. Brent alone has increased 20% from the summer to December. It is further clarified that two other major factors that the media house is conveniently ignoring is that the government entities have to follow PPRA Rules and a tender issued on October 2, 2020 cannot be awarded the same day.
The second factor is that LNG price having been ring-fenced, ordering cannot be done until the demand is firmed up. The complete lack of understanding of relationship of JKM and Brent pricing, has led this media person to claim a false victory. Such attempts only undermine the objectivity that good journalism demands. We urge the media to focus on the core issue of legal reforms needed in the gas sector rather than unfounded sensationalism.
For more information, contact:
Principal Information Officer,
Press Information Department (PID)
Tel: +92-51-9252323, +92-51-9252324
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Website: www.pid.gov.pk