PM body detects $2bn annual loss in gas supply chain

Updated April 06, 2020

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Incompetence, mismanagement at all levels of policymaking, regulatory and operational functions cited as reasons. — Dawn/File
Incompetence, mismanagement at all levels of policymaking, regulatory and operational functions cited as reasons. — Dawn/File

ISLAMABAD: The Prime Minister’s Inspection Commission (PMIC) has found almost $2 billion worth of losses annually in the natural gas supply chain due to incompetence and mismanagement at all levels of policymaking, regulatory and operational functions.

In its final report submitted to Prime Minister Imran Khan, the PMIC has identified a series of gas leakages, theft, wrong measurement at various gas transfer points, questionable policymaking and defective regulatory process. It has recommended to the government to introduce a new concept of unaccounted for gas (UFG) beginning from gas field or LNG (liquefied natural gas) injection from import terminals up to end-consumer by getting rid of the misleading and narrow definition of gas losses within the pipeline network of two utilities — Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL). It argued that a lot of gas loss was taking place before the gas pipeline network of gas utilities began, for example, at gas field or LNG terminals, although losses and wrong billing and measurement were pervasive in the entire supply system.

The report said UFG losses in the Sui gas companies stood at 13 per cent due to incorrect or no measurement of gas or lack of commitment by gas supply and production companies to accurately and fully reconcile system gas inputs and outputs. While internationally gas pipeline operators are allowed UFG in the range of 0.5pc to less than 5pc, “in Pakistan the UFG is present in the entire gas supply chain at much higher levels which are partially allowed legally and partially covered through deliberately confusing metering and unit-conversion formulae”.

The PMIC said well head metering of raw gas had been absent from a majority of gas fields, adding that this was a serious issue as the reservoir productions remained in-metered and thus upstream regulator — Directorate General of Petroleum Concessions (DGPC) — remained oblivious to gas flare quantities, leakages, wastages, internal consumptions at processing plants and well head gathering pipelines.

Incompetence, mismanagement at all levels of policymaking, regulatory and operational functions cited as reasons

The same is the case with re-gasification of LNG imports where gas lost or used in re-gasification terminals remains a mystery even after four years of RLNG operations. “Non-existence of energy reconciliation across each component gas supply chain renders the entire gas supply chain free to waste gas at will, naturally to the detriment of a country already reeling from numerous economic impacts,” the report said.

The PMIC deplored that despite being in the operations business for half a century, the gas utilities were clueless in the matter of controlling UFG. Claimed quantities of lost gas to the Oil and Gas Regulatory Authority (Ogra) by the SSGCL and SNGPL in 2016-17 were 68.4 billion cubic feet worth Rs23bn and 36 BCF worth Rs11bn, respectively. This loss is over and above gas internally consumed (GIC) of 5.32 BCF worth Rs1.7bn.

The fiscal year 2016-17 witnessed 110 BCF of pipeline quality gas worth Rs36bn (about 12pc of total gas purchased by the two gas utilities) disappearing while gas was being transported from processed gas delivery points to consumers. “In terms of an equivalent quantity of imported RLNG at $11 per million British thermal unit, this loss is worth approximately $1.2bn,” the report said.

Moreover, the PMIC has concluded that RLNG quantity delivered in the SSGCL pipeline was significantly less (to the extent of 7.25pc) when compared to LNG import. Also, the commission alleged that apparently every move of the director general gas protected the profits of the shareholders of gas companies, including in the case of RLNG.

The federal government and the World Bank tried to support gas companies with $190 million loan to control gas theft and loss and through the Gas Theft and Recovery Act 2016, but the Ministry of Energy and gas companies did not show any interest and the World Bank cancelled the loan.

“Unfortunately, the Ministry of Energy (Petroleum Division) lacks the capacity to even understand the technicalities involved in the UFG issue” despite the fact that senior officers remained on the boards of gas companies and UFG committees and drew hefty extra remunerations, the report said.

The Ministry of Energy, the PMIC observed, always acted to protect interests of gas companies and facilitated policy guidelines from the Economic Coordination Committee (ECC) of the cabinet which were against the Ogra Ordinance in the context of efficiency and protection of consumer interests. This was particularly the case with handling of UFG in price notifications for RLNG and final revenue requirements of gas companies.

As if that was not enough, the role of Ogra had been far below the conduct expected from an independent and prudent regulator. “Not only has it complied with the formal policy guidelines of the government which are inconsistent with Ogra law, it has caused significant confusion through formulation of rules and regulations which are contradictory,” the report regretted.

On top of that, the role of DGPC for upstream sector efficiency and UFG control was first realised in June 2017 with identification of anomalies at five gas fields, but corrective efforts initiated by the DGPC were abruptly stopped in December 2017 for reasons unknown.

The PMIC has recommended to the prime minister to direct the authorities concerned to immediately get rid of the policy guidelines given to Ogra inconsistent with its law, engage with the World Bank for revival of theft and leakage control programme and remove all measurement, definitional and regulatory anomalies.

Published in Dawn, April 6th, 2020