Pakistan's Power Generation Costs Jump 38% on Record Spot LNG Buys

Power generation expenses in Pakistan experienced a significant surge of 38% in July compared to the previous year. This increase was primarily attributed to the procurement of spot LNG at the highest prices in four years due to supply disruptions from the Middle East. The costs to generate electricity rose as a result of higher power output in July and the escalation in spot LNG prices, which Pakistan had to acquire due to the absence of regular shipments from its long-term supplier, Qatar.

According to Arif Habib Limited, a local brokerage and research firm, the high cost of power generation is driven by a higher mix of refined LNG and furnace oil, along with the reliance on spot RLNG cargoes. Elevated oil prices have further contributed to the rise in generation costs. Furthermore, the total electricity generation in July also increased, pushing up the overall costs.

Power output rose by 7% in July from the same month a year earlier, marking the "second-highest for any July month" due to the highest-ever hydel, local coal, and imported coal generation. Pakistan has been paying top dollar for LNG supply this summer as the closure of the Strait of Hormuz and the stranding of cargoes from its term supplier, Qatar, have compelled the South Asian nation to seek spot LNG in the market.

The state-controlled importer, Pakistan LNG Limited, accepted a spot shipment from TotalEnergies Gas & Power Limited for delivery on July 27-28 at a price of up to $21.88 per million British thermal units (MMBtu), which is the highest Pakistan has paid for an LNG cargo since the Iran war commenced in February, exacerbating global LNG flows.