LNG muddle persists

Published April 24, 2015
The technology to import LNG may be simple, but the policy framework required to manage and transport the fuel to upcountry customers requires a little bit of work.  — Reuters/file
The technology to import LNG may be simple, but the policy framework required to manage and transport the fuel to upcountry customers requires a little bit of work. — Reuters/file

Importing liquefied natural gas is not rocket science. The technology is very old now and the market for LNG highly developed. India began importing LNG in 2003.

Today, it is the world’s fourth largest LNG importer, after Japan, South Korea and China. Japan entered the LNG market as a large player following the disaster at the Fukushima nuclear power plant in 2011, and became one of the world’s largest importers in a matter of months.

India is moving to diversify its supply contracts away from Qatar towards Australia, Russia and the United States, and has even acquired stakes in a Mozambique LNG project.

Read: Gas company chief ordered to sign LNG deal or pack up

It is also eyeing new offshore gas discoveries in Africa. Meanwhile, here in Pakistan, the government is still struggling to import subsequent consignments of LNG following the arrival of the first vessel in late March. And the matter is snagging on issues so basic that it is surprising that it was left to the last minute to be sorted out.

The technology to import LNG may be simple, but the policy framework required to manage and transport the fuel to upcountry customers requires a little bit of work.

Third-party access rules need to be worked out for utilisation of the government-owned pipeline infrastructure.

Read: Private company blocked from importing 20pc cheaper LNG

Clear terms on how a molecule swap arrangement will function need to be worked out, authorisation from provincial governments to draw pipeline gas out of the system against a swap at the terminal has to be acquired, and most importantly, clarity is urgently wanted on whose responsibility it will be to pay for the imported consignments, or what the mechanism will be for private parties to place contracts in the spot markets.

In short, a large policy framework is necessary to enable the smooth import and transmission of LNG.

It is becoming apparent that none of this work was done in the run-up to the start of commercial operations of the LNG terminal. Disputes continue to swirl around each issue, with the Port Qasim Authority claiming that the channel width and depth is not sufficient to manage the kinds of cargoes that parties are looking to bring into its channels.

Then there are disputes between PSO, SSGC and SNGPL about who will pay for the imports.

Considering the enormous fanfare that the government created around the project, the fact that these disputes show no signs of being resolved even after the terminal has begun commercial operations reflects very poorly on the petroleum ministry and its capacity to execute this scheme.

The disputes are now at risk of growing beyond the control of the government to be able to manage, and if not dealt with expeditiously, could escalate to legal battles.

The policy framework should be finalised at the earliest, and smooth imports should commence on a priority basis to avoid further damage to the government’s credibility.

Published in Dawn, April 24th, 2015

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