ISLAMABAD: Notwithstan­d­ing the initial successful flow of the fuel into the national network, the government’s project of importing liquefied natural gas (LNG) has revealed a number of legal, logistical and operational issues.

As various agencies and ministries struggle to resolve a series of problems at the port, in the gas transmission system and on the legal front, the Qatar Gas has declined to dispatch Q-Flex ship loaded with LNG for the time being.

Read: 17pc GST on LNG, imported gas

Meanwhile, the buyers of the fuel in the private sector have remained awestruck, according to a senior government official.

As an emergency solution, the Pakistan State Oil (PSO) has requested Engro Corporation’s subsidiary Engro Elengy Terminal Limited (EETL) to hurriedly unload its Floating Storage and Re-gasification Unit (FSRU) so that it could be dispatched to the Middle East for another LNG refill.

Also read: PQA cries foul as LNG import looms

“The PSO has requested that FSRU be re-sent for the refill... and Engro is willing to support,” said a senior executive of the organisation.

This is rather unheard of in the world of LNG business because the FSRU has to remain berthed at the port for all times, to facilitate ship after ship in LNG unloading, gasification of LNG and its transmission to the gas network in a continuous cycle.

The FSRU is not an LNG carrier; it is much heavier than Q-Flex vessels and involves much higher transportation cost.

Also read: LNG injected into gas supply network

Also, the dispatch of the FSRU for a direct refill involves a complete break in the gas supply cycle for at least a week.

Even the FSRU is expected to be refilled under a temporary arrangement or spot purchase in the absence of a formal government-to-government deal or LNG purchases through competitive bidding — a requirement under procurement rules.

As a consequence, the first FSRU cargo which brought over 140,000 tons of the fuel about two weeks ago has started injecting into the gas network about 200 million cubic feet of gas per day as contractually required. It then gradually reduced gas flow to about 100mmcfd to maintain supply cycle and facilitate the government to arrange a proper shipload from the Qatar Gas, but has now been asked to scale up unloading at 300mmcfd.

The FSRU is expected to be emptied by April 16, start refilling on April 19 and return to Port Qasim by April 22-23 with a second cargo. Sources said the Port Qasim authorities had sent technical reports to the Qatar Gas, which required more dredging of the LNG handling facilities to facilitate its Q-Flex vessel as originally envisaged. The Qatar Gas does not have smaller ships to spare for the PSO.

Background discussions with government officials revealed that the price of LNG delivered at the doorstep of a power plant or fertiliser unit was turning out to be over $14 per million cubic feet of gas at the minimum. This means that the LNG option may fail to secure preference in cost-benefit ratio over furnace oil, for which it was originally conceived. At this rate, LNG may only be considered replacement fuel for expensive high speed diesel besides being environment friendly.

That is not all. The imported LNG so far injected into the gas system has not reached the Pak-Arab Fertiliser company which made a part payment for the first cargo because of an absence of the required legal and regulatory framework.

“Pak-Arab (Fertiliser) continues to get system gas — a jargon used for locally produced gas — even though it is not entitled to get natural gas at this time,” said an official.

To legally swap imported LNG with system gas for Pak-Arab Fertiliser, the government should have first suspended Third Party Access Rules with the approval of the prime minister and the federal cabinet. This has not been done.

Even the PSO has partially paid for the first cargo and entered into an arrangement with the Sui Southern Gas Company for sharing cost of service, but has now issued a letter to the Sui Northern Gas Pipelines Limited (SNGPL) which required it to fund liability in case EETL imposed $272,000 per day penalty on SNGPL for not utilising its terminal.

As a result, the SNGPL, as a regulated entity, will not be able to get LNG pricing and its replacement from the Oil and Gas Regulatory Authority (Ogra). It cannot raise an invoice for LNG sale to a consumer, at this stage Pak-Arab Fertiliser, because there are no enabling rules, LNG price approval by Ogra, capacity charges approval and transportation charges or margins.

An official said that “Ogra at present is a legally non-existent regulator” following an order issued by the Islamabad High Court.

On the other hand, the water and power ministry has complained in a strongly worded communication that the petroleum ministry and its organisations had not fulfilled the agreements with independent power producers (IPPs) and fresh arrangements proposed for standby letters of credit (SBLCs) were not acceptable to the IPPs for the upcoming LNG import.

In response the petroleum ministry, in an equally strongly worded letter, has put the blame on the power and water ministry. Referring to the SBLCs to be provided by IPPs to the SNGPL to secure LNG procurement by PSO, the petroleum ministry said: “No such SBLC has been provided so far and this resulted in the delay in supply of re-gasified LNG to the IPPs. Please note that the minimum period for the LNG logistical chain to operate is 45 days after the SBLCs are provided.

“The payment mechanism for LNG has still not been implemented despite clear directions by the cabinet committee on energy headed by the prime minister himself. The LNG procurement process cannot be completed till this payment mechanism is in place; this is a condition precedent to signing of the LNG sale and purchase agreements.”

Published in Dawn, April 13th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play