ISLAMABAD: Falling international oil prices have made liquefied natural gas (LNG) economically viable for sale through weighted average prices of natural gas to domestic consumers.

According to Petroleum Minister Shahid Khaqan Abbasi, the LNG price delivered in Pakistan now works out at around $5.50 per mmBtu. His estimates are based on price offered by Russian firm Gunvor at 13.37 per cent of Brent for five years and then matched by Qatargas for 15 years.

A petroleum ministry official said the LNG prices offered by Gunvor and Qatargas had further come down after the Brent fell below $29 a barrel on Monday. At this oil level, LNG price works out at $3.87 per mmBtu and could end up below $4.5 per mmBtu in Pakistan after inclusion of all other charges and taxes.

This could be further cut by disallowing higher retainage of 1.50-2pc being demanded by oil and gas companies.

The French Oil and Gas Regulator recently allowed LNG retainage of 0.2pc to two operators and 0.5pc to a third one.

On the other hand, majority of gas fields are producing gas at more than $3 per mmBtu. There are also some gas fields whose well-head prices are well over $5 per mmBtu. In fact, the well-head price of Kandanwari fields currently stands at around $7.65 per mmBtu.

If LNG prices are made part of the weighted average cost of gas (WACOG) with domestic production, the imported commodity is now well within the gas purchasing power of the residential consumers, the official said, adding “it can happen quite easily if the government is really interested in reducing sufferings of the citizens who do not have natural gas even for cooking in these winters”.

He said it has been proposed to the government to take advantage of the low oil prices and treat LNG import price as well-head price for inclusion in the revenue requirement of the two gas utilities as has been the standard practice in the case of consumer gas prices and prescribed prices.

He said the oil industry expected the Brent to fall below $20 a barrel once Iran jacks up its production following removal of international economic embargoes. At that rate, the LNG delivered ex-ship (DES) price would fall below $2.70 per mmBtu.

He said the decision not to provide LNG to domestic consumers was taken when the international oil prices were more than $100 per barrel and the high line losses of gas utilities did not make it feasible to be made part of WACOG prices for sale to all consumer categories. Hence, the expensive LNG was dedicated for big consumers like power, fertiliser, industrial and CNG stations. The difference between LNG and domestic consumer prices at the time was around $7 per mmBtu.

Sources said the winter may prolong until end of March but the government companies have been injecting on average 100 mmcfd of LNG into the system even in December-January for sale to specific big consumers because of payment issues.

They said the LNG terminal had the capacity to handle around 600 mmcfd of LNG and the government has been importing between 300-325 mmcfd in October and November. Maximum utilisation of the terminal would also reduce the service charges and ease the lives of citizens in winters.

Official sources said that while over 40 per cent gas shortage was being faced by domestic consumers in Punjab, the government had not made any efforts to divert usual quantities from the south. The gas supply to Fauji Jordan Fertiliser plant using about 60 mmcfd was closed in January instead of past practice of November while natural gas was still being supplied to Jamshoro Power Plant.

Because of gas shortage in Punjab, the domestic consumers had been forced to utilise liquefied petroleum gas which was three times expensive than natural gas. This meant that they can afford LNG-mixed gas price. On top of that, the non-professional transfer of LPG to temporary cylinders not filled by the LPG companies was also resulting in loss of human lives.

Published in Dawn, January 19th, 2016