Consumers may pay too high a price for virtual LNG ‘pipelines’ in Pakistan 

Pricing LNG by truck and rail into Pakistan’s gas market may prove overly challenging

In a move aimed at diversifying its natural gas supply options, Pakistan appears to be considering setting up virtual liquified natural gas (VLNG) ‘pipelines’ across the country. At present, the country has at least two VLNG projects underway, yet the economic viability of such ventures and their impact on the local consumer base remains unclear. 

Demand for natural gas including LNG remains strong in the country due to the inherent and widespread dependency of domestic, commercial, industrial, and power sectors on the fuel. However, dwindling domestic gas reserves and difficulties securing LNG cargoes on the spot market has led Pakistan to seek an alternative means of securing gas supply to ensure energy security – LNG virtual pipelines.

Proposed virtual LNG supply chains in Pakistan

Virtual LNG supply chains, also referred to as trucked LNG in certain scenarios, are an alternative to the traditional means of supplying natural gas through pipeline infrastructure, typically involving the transportation of LNG using cryogenic trucks/tanks or rail. 

In December 2023, the China National Chemical Engineering Company (CNCEC) and LNGFlex Limited signed a Master Engineering Procurement Construction and Finance (EPCF) contract worth more than US$500 million to set up a virtual LNG supply network and a long-distance pipeline gas supply chain in Pakistan. CNCEC is a Chinese contractor with decades of experience in China’s LNG market, while LNGFlex is a subsidiary of the United Arab Emirates-based Bison Energy Group, which recently acquired the Tabeer LNG project, situated in Port Qasim. 

Together, the consortium will carry out the project in two phases. The first includes construction of a VLNG network complete with an LNG receiving terminal, on-shore LNG storage, and procurement of a fleet of ISO trucks. The VLNG network is expected to commence construction by the last quarter of 2024. The second phase, which involves a gasification facility and long-distance pipeline along with other associated infrastructure, is expected to receive a Final Investment Decision (FID) by 2025. Upon completion of the project, the virtual LNG pipeline will have a peak supply capacity of 750 million cubic feet per day (mmcfd) or 5.23 million tons per annum (mtpa). 

Other contenders include LNG Easy, a subsidiary of the Singapore-based LNG Easy Pte Ltd, which was awarded a provisional license in 2021 by the Oil and Gas Regulatory Authority (OGRA) for the supply of trucked LNG to off-grid consumers in Islamabad, Lahore and Karachi. Since then, the company has brought in a local partner called the Punjab Group, a Pakistan-based provider of education services not previously involved in the energy sector, and in September 2022 the consortium submitted an application to OGRA for a construction/operation license. In June 2023, OGRA conducted a public hearingregarding the provision of a license to the joint venture (JV), although no specific progress on the outcome of the hearing has been reported to date. 

According to the original announcement from LNG Easy, the project was expected to begin importing around 1 million tons per annum (mtpa) of LNG in 2023, but clearly the project has yet to materialize. It is speculated that the volatile nature of global LNG supply, resulting in a high-priced supply environment in Asia, has prevented the project from making much headway.

Both projects will be independent of government regulation and carried out entirely by the private sector, including the marketing of LNG to end-users.

Is VLNG in Pakistan economic?

The virtual LNG pipeline projects by LNG Easy and Tabeer Energy will be pioneering projects in off-grid natural gas supply in Pakistan, and therefore an exact benchmark pricing for the commodity may not be available at present. However, other regional markets, such as China’s trucked LNG business, may offer a predictive range for what the price could be. According to S&P, the average price of China’s trucked LNG (CTL) closed at around US$600.82/mt or US$12.7/MMBTU on February 28 2024. China’s trucked LNG market relies on both spot and long-term cargoes. Since the sector is unregulated by the state, the prices broadly reflect the spot market plus a transportation premium, as importers allow the prevailing trends of the open market to dictate the retail price.

By virtue of the same principles, LNG importers in Pakistan can procure on the spot market or rely on oil-indexed long-term contracts. Due to Pakistan’s recent poor performance on the spot market – the country has only procured two spot cargoes since June 2022 and at too high a premium – VLNG developers have…