LNG import: a quick remedy

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With energy shortfalls particularly that of natural gas anticipated to worsen in the coming winter and extrapolate in the subsequent years, the need for import of liquefied Natural Gas has attracted fresh government attention.

The LNG has drawn more attention from a general realization that gas import pipeline projects even if they materialize would only bridge the gas shortfall that is to increase from now on as politically motivated new connections are actually energized without fully wiping out the demand and supply gap that currently exists on ground.

And given the fact that the Pakistan People’s Party and Prime Minister Raja Pervez Ashraf have limited time to show Performance before next general elections, short-term policy options are being finalized quickly to make another attempt to start LNG imports by the time winter sets in by October this year. The political leadership is concerned that gas shortfall ahead of election could be used by political opponents as anti-government election campaign.

With total gas supplies currently at about 4.2 billion cubic feet per day (MMCFD), official estimates put total shortage at about 3 BCFD by 2015, provided Iran-Pakistan gas Pipeline is completed and starts delivering the committed quantities by December 2014.

Being a former chairman of a cabinet committee on LNG and a former water and power minister, Prime minister Raja Pervez Ashraf has an added knowledge and interest to deliver at least one energy project that could improve his political standing marred previously by controversies over rental power projects and failure in eradicating load shedding despite giving deadlines to do so.

In a meeting of the Economic Coordination Committee (ECC) on May 15, 2012, Prime Minister Ashraf was made head of a committee (when he was minister for information technology and telecom) to come up with a solution to LNG imports as various previous attempt had met with failures. He presided over five meetings between May 16 and June 16, 2012 wherein various proposals and observations for the stakeholders were deliberated in detail but without any conclusion.

He had limited powers as head of a sub-committee of the ECC with his elevation to the premiership, he has now more powers and influence to deliver.  He is reported to have assured his advisor on petroleum Dr. Asim Hussain not to expect traditional resistance from other ministries particularly the ,ministry of finance now that he himself was in the driving seat and if failed at the ECC level, the matter could be brought up to the federal cabinet.

While presiding over a meeting with All Pakistan Textile Mills Association, the prime minister have reported to have constituted a committee comprising APTMA chairman and secretaries of water and power and petroleum and desired that immediate work must be initiated for LNG import “as the forthcoming winter would be very difficult to pass without significant augmentation of gas supplies.”

With the CNG sector on a three-day a week closure, the fertilizer sector adversely affected by  recent decision to slip down the priority list against power sector, and textile industry on the verge of collapse and cuts in export orders, the emergency situation is understandable and unavoidable more so, when the economy is down under and elections looming.

In this background, the petroleum ministry has now finalized a fresh set of proposals short- and long-term import of LNG on emergency basis. It expects the prime minister to prevail upon the ministry of finance to provide rolling guarantees or sovereign guarantees for LNG imports or else come up with a solution that can help mitigate the looming and worsening energy crisis.

With already declining foreign exchange reserves, and accelerated depreciation of Pakistani currency that is to be a difficult option for the economic team but then the negative impact of economic difficulties owing to energy crisis and its political backlash are to be kept in mind by the political leadership.

As a short-term solution, the petroleum ministry believed that LNG could be imported by Sui Gas Utilities in four-five months provided given a go ahead within this month. For this, it is presenting Progas- a LPG company purchased from private sector- as a surviour. It will import LNG under the umbrella of the federal government and will act as purchaser or aggregator while the two gas utilities would be off-takers on its existing LPG terminal by retrofitting.

While the PNSC will be giving the responsibility for shipping LNG, the ministry of ports and shipping and other related agencies would grant permissions to allow LNG imports at existing terminals. Progas shall be responsible for development of its own re-gastified LNG (RLNG) terminal subsequently duly equipped with requisite facilities through a joint venture for a second terminal on competitive basis. Both the terminal will be compensated through a tolling charge to be determined by competitive basis and to be approved by Oil and Gas Regularity Authority (OGRA).

The Progas would procure LNG directly from international competitive bidding and would be authorized to represent government of Pakistan where supplies are arranged on the basis of government-to-government negotiations such as with Qatar, Brunei, Algeria and others Government guarantees as advised by the ministry of finance will be available for purchase of LNG while SSGC/SNGPL will purchase RLNG from Progas on back-to-back basis.

The RLNG will be delivered by terminal operator at SSGC’s on-shore delivery point from where a pipeline would transmit the gas to the existing transmission network in the national grid. The cost of imported LNG will be factored in the weighted average cost of gas and its impact transferred to consumers.

Since, Ogra has been opposed to such move; changes would be made in the Ogra Act perhaps through an ordinance. A part of the Gas Infrastructure Development Cess (GIDC) approved last year and made part of current year budget would also be utilized to fund the project to reduce the cost. The RLNG supplies will cover a part of gas requirements for about five years.

For long term, Progas would invite private companies including existing capacity holders and terminal and sell it to utilities or bulk consumers directly. Progas would also have the option to construct new LNG terminal.

The government will provide necessary sovereign guarantees in case RLNG is purchases by utility companies. This long-term project could commence RLNG supply in 30 months once the process of approval is complete but that may be implemented by the coming government.

The previous attempts for LNG import have almost reached a dead end in absence of a buyer-seller arrangement between LNG importers and end-users for lack of adequate guarantees owing to huge pile up of circular debt, affecting the ability of the potential buyers to regularly pay for LNG usage. A demand for sovereign guarantee by existing capacity and license holders has met deadlock owing to a ;apse in the existing LNG policy which is now being amended.

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