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Gas supply disruptions

February 19, 2019

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THE government had promised a fairly smooth supply of gas to all consumers this winter. But gas shortages continue to frequently disrupt supplies across the country. The dismissal of the heads of the two publicly owned distribution companies for failing to ‘forecast’ shortages and managing the crisis that followed in December did not help improve the situation. The crisis reappeared this month as the gas companies were forced ever so often either to suspend or curtail supply to the industry, CNG stations and power producers in order to meet the increased demand from their domestic customers coping with colder weather in Punjab and KP. So many varying justifications were given by the distribution firms for the recurring shortages: increased seasonal demand from the domestic sector; delayed arrival and berthing of the LNG cargos; closure of the two LNG regasification terminals for periodic maintenance; the use of illegal compressors; and so on. All these factors may have complicated the situation, but the fact remains that shortages recur because of the government’s failure to assess the actual requirements for the winter and plan enough imports to cover the supply gap.

Gas shortages are not new to this country. But these have worsened with the passage of time, despite expensive LNG imports that began in 2015. With the domestic gas resources depleting by at least 5pc and demand growing by another 5pc annually according to official estimates, the supply gap is projected to widen to 4,000mmcfd, or equivalent to current local production, by 2025. At present, the country faces a supply hole of up to 3,000mmcfd when demand peaks during winter. A third of this is being met through LNG imports of around 1,000mmcfd. Unless new gas fields are discovered and developed, Pakistan will need to import 30m to 35m metric tonnes of LNG a year to meet its increasing gas requirements driven by a growing economy, rising demand from the power and industry sectors, and expansion of the domestic distribution network. Given the government’s frail financial position and the rent-seeking demands of industrial and commercial customers that its presence in the energy markets creates, it should deregulate the LNG sector, and let the market determine the quantity of gas, when to import it, and at what price to sell it. The same principle could be applied to the local gas and domestic customers at a later stage to control the heft and waste of the precious resource.

Published in Dawn, February 19th, 2019