The great LNG crunch

Bol News  |  Jan 16, 2022

Despite all the hue and cry around gas shortages, Pakistan has not been able to develop any new liquefied natural gas (LNG) terminals since 2017, while smooth commercial import of the scarce commodity still remains a far cry.

Energy is a very tricky subject as far as Pakistan is concerned, where the industrialists, compressed natural gas (CNG) sector and domestic consumers keep complaining about the dearth of the natural resources, while the government’s mouthpieces keep propagating, “all is well”.

At present, Pakistan faces a gas supply gap of 1,300mmfcd. This could have been significantly reduced if the government had allowed the two existing terminals to increase their import capacity by 600mmfcd, something that could be done in a few weeks and sell directly to industrial consumers without incurring any liability on the national exchequer.

The country would receive one less LNG consignment this January from Qatar under the long-term contract signed in 2017, which would further aggravate the gas shortage.

“We anticipate the LNG consignment from Qatar, scheduled for January 10, would not come. But this would not be a problem, since the situation is not that worse as projected in the media,” said Muzammil Aslam, spokesman for the Ministry of Energy, while talking to BOL News.

Qatar had been defaulting one LNG consignment every month for some time, he added.

The country has stayed the spot purchases since the last tender was issued on November 2, 2021.

Energy Minister Hammad Azhar at a press briefing in late December said: “The country faces gas shortages every winter because Pakistan’s natural gas fields are seeing a depletion of around 9 per cent each year and imported LNG is very expensive.”

Albeit, the rising global demand and record high commodity prices, mismanagement remains the main reason for gas shortages, which has a systemic impact on the economic growth, as well as standard of living of the people.

Despite the plan and claims, the LNG sector has not been deregulated. Business groups aspiring to set up LNG import terminals and the parties willing to import the gas have not yet succeeded in their endeavours.

However, Muzammil Aslam negates all these impressions, saying the demand was low because winter was not that cold.

“The industries were offered to have themselves audited for their energy consumption, and after that the supply to their units could be restored. But, they are not agreeing for the audits, which hints at something fishy.”

Around 5,000 tonnes of furnace oil/day was being consumed for the electricity generation, which could be increased to 15,000 tonnes/day to keep the electricity supply intact, Aslam said.

This development will bode quite lucrative for the generation companies and refineries producing furnace oil but not so much for the consumers, who would be paying much more for their electricity bills.

Market sources claim the four state-owned companies, including Sui Southern Gas Company (SSGC), Sui Northern Gas Pipelines Limited (SNGPL), Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL) are the primary impediments in the development of new terminals and commercial imports.

PSO and PLL are the importers, while SSGC and SNGPL are the distributors of the imported gas. Being the state-owned companies, they enjoy absolute monopoly on the entire LNG sector.

Ghiyas Paracha, chairman of the All Pakistan CNG Association (APCNGA) said that some departments were ruining the economy in a bid to continue their monopoly over the troubled gas sector.

“The desire of these departments is resulting in production and export losses to the tune of billions, while hundreds of thousands of people are losing their jobs in this era of double-digit inflation,” Paracha said.

“Because of these factors, a gas crisis occurs every winter and now it has also become a routine during the summer, costing the battered economy dearly.”

Despite the government’s desire to liberalise the gas sector, some elements are not allowing the private sector to start cheap gas imports. Due to the shortage of gas in the country and mismanagement in gas imports, the country’s economy loses billions, while investors receive a negative message.

The same elements are obstructing the construction of new terminals, expansion of existing terminals and construction of the gas pipeline, which is badly needed, he added.

Gas bureaucracy has failed to import LNG on time and at reasonable prices and, at present, expensive gas is being imported to sell it cheaply to influential sectors.

The gas supply to the CNG sector, which has been paying the highest price of it, has been discontinued, as mismanagement in the gas sector has reached its peak, which has severely affected its performance.

Moreover, because of rampant mismanagement in the gas sector, the circular debt is increasing rapidly, resulting in troubles.

Some self-seeking ministers were also responsible for the gas crisis, Paracha said and demanded the prime minister to take action against them.

The Ministry of Energy’s spokesperson again rejected all these claims, saying the state-owned companies had no issue with the development of new terminals and commercial import of LNG, as this would ease their affairs.

“The problem is the aspirants of commercial LNG import do not have enough buyers to dispose of an entire consignment.” “The CNG sector’s demand is less than half of a standard LNG consignment; where would the rest of the gas go?” Aslam asked, adding that they would only keep the system occupied, causing more problems.

Federation of Pakistan Chambers of Commerce and Industry (FPCCI) president Mian Nasser Hyatt Maggo said that the gas crisis was the outcome of mismanagement, as the gas supply was being suspended across the country.

“Delay in LNG imports, blocking LNG imports by the CNG sector for years and the maintenance of gas fields and LNG terminals at the wrong time when electricity demand was at its peak speaks volumes about the expertise of the officials concerned,” he added.

The government would not import gas in time and will not allow the private sector to import gas, which is creating multiple problems.

While the short-term solution to the country’s energy shortages lies in removing the infrastructure bottlenecks to ensure smooth imports and to meet domestic demand, energy problems cannot be tackled in the long-term without encouraging exploration of untapped local energy resources. That will not happen unless an “ease of doing business” environment is created for the investors.

Meanwhile, the government would introduce a bill in the Parliament within 8 to 10 days for weighted average cost of gas (WACOG) for the sale of local and imported liquefied natural gas.

“We are not going to increase these gas prices immediately but in a phased manner, as the government expected the international LNG prices to come down in the coming month,” Hammad Azhar said.

“At present, the local gas supply and LNG import has a 70:30 ratio. This would change to 50:50 in two years but the share of the LNG would increase to 80 per cent to 90 per cent in a few years for which the WACOG was important,” Azhar added.

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