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Terminal illness

As first LNG shipment touches Pakistani shores, the government is still unclear on many counts

Terminal illness

With no major breakthrough in power generation through coal or new hydel or thermal plants over the last few years, eyes are fixed on the imported Liquefied Natural Gas (LNG) as an immediate solution to the country’s energy woes. While it may take long time and huge finances to set up coal-powered plants, LNG can be imported in a short period of time and used to run power plants and produce cheaper electricity.

At the same time this gas, if imported in big quantities, can be provided to the Compressed Natural Gas (CNG) sector which has always been on the losing end due to depletion of indigenous natural gas resources. Whenever there is an increase in demand, the CNG sector is the first to face a cut in supply.

The fertilizer sector, which needs natural gas as a basic raw material, is also believed to get a new lease of life courtesy the availability of imported LNG. Currently, they face shortfalls in production when the demand for natural gas increases especially in winters and most of it is diverted to the domestic sector. To meet this shortfall, fertilizer has to be imported at high rates and subsidised by the government to keep its price close to that of local products.

Energy experts believe import of LNG is one of the best solutions available to countries struggling to cope with immediate energy needs. Besides, it is far more feasible and economical than laying pipelines to bring in gas from other countries.

Against this backdrop, it is no small news that Pakistan has received its first-ever supply of LNG in the last week of March this year. Though the government did not open up earlier and withheld related information for long, it was finally made public that two private companies, Universal Gas Distribution Company Private Limited and Pak-Arab Fertilizer, and not the government had imported this consignment of 148,517 cubic meters. The rate negotiated by the government for this gas was $8 per mmbtu which was also unknown to the people until recently.

The situation right now is that there is a lot of ambiguity about LNG deals and policy and it seems the government has not done its homework properly. For example, it is not yet clear which sectors will receive share of imported LNG, what will be the price tag for different sectors, how will it be transported to different destinations, how the regular supply will be ensured, how the reservations of provinces especially Sindh will be addressed and so on.

There is a lot of ambiguity about LNG deals and policy. It is not yet clear which sectors will receive share of imported LNG, what will be the price tag for different sectors, how will it be transported to different destinations, how the regular supply will be ensured, how the reservations of provinces, especially Sindh, will be addressed and so on.

Besides, there was a major concern among the stakeholders about the rate at which the government was planning to strike a long-term deal with Qatar. Reportedly, there was a plan to go for a 20-year deal at a fixed rate despite the fact that the LNG rates were coming down fast. There is a demand that contracts for LNG import shall be made for shorter periods in order to benefit from likely fall in its global prices in years to follow.

M Amir, who works in the oil and gas sector, says the price at which the government shall buy LNG should be competitive and decided after thorough negotiations. If deals are made on higher rates, the product will not remain feasible, he adds. He tells TNS that at one time the Pakistan government was thinking about buying LNG at $17 per mmbtu but finally struck a deal at a rate of $8 per mmbtu. It is quite likely, he says, that this price will further come down as US has reduced its purchase of imported LNG and Japan is focusing more on nuclear energy. The excess supply in the market will give Pakistan an opportunity to negotiate good rates, he adds.

Another outstanding issue is the disagreement between the Centre and the Sindh government on the use of distribution networks. The Sindh government has reservations against the federal government’s decision to supply the imported LNG to Sui Southern Gas Company (SSGC) network and get indigenous gas in return. It says Article 158 of the Constitution gives provinces priority right over the use of its resources.

Though it produces around 78 per cent of the country’s gas it does not even consume even 50 per cent. Sindh demands that the government must lay a pipeline and give LNG to other provinces and let it use all the gas it produces itself. It also claims that the heat value of LNG is low though it is twice as costly as the indigenously produced gas.

The All Pakistan CNG Association (APCNGA) Chairman Ghiyas Abdullah Paracha tells TNS that they are counting a lot on LNG import as it would give a new life to the ailing CNG sector. He hoped the supply of LNG to CNG stations in Punjab will help them run their pumps for seven days a week. This will spare enough indigenous gas which can be provided to CNG outlets in other provinces. Though the rates at which LNG will be provided to the CNG sector is not yet final, Paracha hopes it would be at least 30 per cent to 35 per cent cheaper than petrol.

The price is definitely a major factor which will determine which sectors will benefit from the commodity, says Anis-ul-Haq, secretary All Pakistan Textile Mills Association (APTMA). He tells TNS that currently the LNG is being given at actual price to the sectors that can pass on the cost to consumers. For example, the CNG and fertilizer sectors can make the price of gas a part of the cost. He says APTMA’s demand is that the LNG should be added to the energy basket and an average price be worked out for the industrial sector. Buying LNG at its actual price is not feasible for the textile industry, he adds.

In case there are less buyers and excess LNG, it will have to be forwarded to the domestic sector. This will be a difficult decision as doing this will raise the price of gas for the domestic sector. As the cost of LNG is almost double than that of the indigenous gas, and the government is under immense pressure not to give subsidy on it, the consumers will have to bear the burden.

Despite all these challenges, the government will have to stay put and tackle different situations with care. It has no other option but to keep the supply of LNG regular. In case it fails to do so, it will have to pay Rs 2,72,000 per day to the Engro Elengy Terminal Limited (EETL) for not using the facility. EETL is an initiative of Engro Group and an example of how the private sector can help government achieve ambitious goals.

This terminal has been built at a cost of $135 million in a world record time of 335 days of signing, and actual construction of 179 days, says  Sheikh Imran ul Haq, CEO EETL.

He shares it with TNS that the terminal has the capacity for re-gasification of up to 600 mmcfd of LNG against a government tender of 200 mmcfd. This, he says, provides for surplus capacity setup for which the company is in negotiations with other stakeholders for utilisation of this excess capacity.

Even if these negotiations turn fruitful, the government role in determination of price and distribution of LNG will be crucial.

Shahzada Irfan Ahmed

shahzada irfan
The author is a staff reporter and can be reached at [email protected]

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