ISLAMABAD: The unwi­llingness of independent power producers (IPPs) to purchase imports of liquefied natural gas (LNG) that are due to arrive on March 31 is liable to put Sui Northern and Sui Southern — the country’s main natural gas utilities — in a tough spot.

The worry is that the IPPs’ inability or unwillingness to pick up the imported LNG would force them to funnel the expensive imported fuel quantities into their distribution system in order to make it available to CNG suppliers — a move that is liable to cause at least 15 per cent line losses and run the risk of theft.

The CNG sector has volunteered to buy the imported LNG to sell to vehicles through their outlets. Most CNG pumps in Punjab are currently closed due to a gas shortage, but there is no way of selling the LNG to the pumps alone because they receive their gas from the same distribution network that also caters to domestic consumers.

On its part, the Petroleum Ministry wants the first LNG shipments to arrive in the country by the March 31 deadline at all costs and is currently holding talks with Qatar on an almost daily basis.

All Pakistan CNG Association Chairman Ghias Paracha said that CNG would continue to be 30 per cent more cost-effective than petrol in terms of mileage. His associates, however, say that the existing CNG rates, worked out at $11.90 per million British Thermal Unit (MMBTU) against an anticipated CNG rate of $13.50 per MMBTU. In the short term, petrol prices are falling while an already-approved gas rate increase is being “artificially blocked”.

Mr Paracha said the government was allowing CNG stations to move closer to main distribution lines under a fresh relocation policy, whereby CNG pumps would be encouraged to move out of residential areas or lay additional pipes to connect their existing stations.

SNGPL, SSGCL may be forced to funnel expensive LNG into pipelines for CNG pumps, leading to line losses

Under the LNG policy and the various follow up decisions taken by the federal cabinet’s Economic Coordination Committee (ECC), all imported LNG was exclusively meant for bulk consumers, IPPs in particular, rather than domestic or small-scale consumers. However, the Ministry of Water and Power has not been very forthcoming in facilitating LNG imports and ensuring their consequent sale to IPPs – something that the Petroleum Ministry desperately needs in order to fix their existing payment problems.

SNGPL and SSGCL are also in a Catch-22 situation. The government has been unable to implement the 14 to 30 per cent increase in tariff, cleared by the Oil and Gas Regulatory Authority (Ogra) and fear that the price differential between domestic prices and imported LNG would eat up whatever little revenue surplus they have. “If the government is reluctant to implement the 14-30pc increase in gas tariff that has already been cleared by the regulator, who is going to bridge the difference between the gas price of Rs400 per unit and Rs1,000 and above per unit of imported gas,” an official asked, rhetorically.

Consequently, SNGPL estimates a revenue loss of Rs6 billion, while SSGCL also expects to follow suit in about 12 to 18 months.

Sources told Dawn that the prime minister would not allow an increase in gas prices for consumers at a time when international oil prices were nose-diving. Domestic gas prices are linked to international crude and furnace oil prices under all existing petroleum policies.

Officials said the Universal Gas Distribution Company – a new entity created by the CNG sector for LNG imports — expressed its willingness to open letter of credit for LNG shipments, but asked gas companies to take care of tolling, billing, metering, connections and distribution on their behalf. The two utilities see little incentive in extending these services given their own losses and experience with fighting gas theft. They are also reportedly not ready yet to make arrangements for remote metering.

Sources said the Petroleum Ministry had touched base with the LNG terminal operator – Engro – to see if a six-month delay in picking up a 250mmcfd consignment of LNG can be compensated by a 400mmcfd purchase.

Under the agreement, the government is required to arrange LNG imports and pick up 250mmcfd with effect from April 1, 2015, failing which they will have to pay the private terminal operator $270,000 per day.

As a possible way out, the test-commissioning of the terminal may have to be quite vigorous, insiders say. The first shipment will require a $40 million letter of credit to facilitate a larger than normal shipment because the terminal has to be tested at full capacity.

IPPs have also demanded one-month advance billing security in the form of standby letters of credit from gas companies, but the companies want to secure themselves too. They are also wary of guaranteeing LNG supplies, which are dependent on Pakistan State Oil.

Published in Dawn February 2nd , 2015

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