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Choices in LNG

February 14, 2018

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NOW that the Supreme Court has done the needful and dismissed what was from the beginning a frivolous petition against the long-term supply agreement for LNG between the governments of Pakistan and Qatar, the focus of attention needs to shift towards the real and substantive question of reforms in the gas sector. In the years to come, as the volume of LNG in our system increases and the share of domestic gas declines, the shares of both will become equal. That point is only a few years away now, given the speed with which new LNG terminals are being erected. Very soon, difficult choices will begin to assert themselves, especially in the matter of pricing. Imported gas, in the form of LNG, is more than twice as expensive as domestic gas, and in the case of some consumer categories, even more than that. Given the huge role that gas plays in our economy, accounting for almost half our primary fuel needs, a time is coming when many stakeholders in industry will be asked to arrange their future supplies of gas from international markets, at market prices. The problem is, many segments of our industry are likely to be rendered instantly uncompetitive when that happens.

The major stakeholders in the country’s gas economy include fertiliser, textiles and power generation. Only a few years ago, gas was also being widely used as a vehicular fuel, but the CNG sector was the first that was asked to arrange its supplies from imported LNG. That sector largely shut down as a result. Now it will be the turn of the bigger players to take on the burden of market pricing for their gas needs, and there’s a fair chance that they too will struggle with the consequences. Our textile exports are already complaining about the high cost of doing business in Pakistan, where energy pricing is central to their argument. The fertiliser sector is also likely to struggle if the subsidised rate at which feedstock gas is provided to it is withdrawn and producers are asked to arrange future feedstock supplies at market rates. In order to prevent the situation from turning ugly, much like the wrangling around gas allocations and the merit order list during the years of shortages, pricing reform is key, as well as a regime that defines clearly who gets priority access to domestic gas.

Published in Dawn, February 14th, 2018