Energy security at stake

Updated 21 Sep 2020

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Various stakeholders had been reporting that normal traffic was compelled to stay away from the main channel sometimes for weeks in the LNG offloading period because of safety conditions. — File photo
Various stakeholders had been reporting that normal traffic was compelled to stay away from the main channel sometimes for weeks in the LNG offloading period because of safety conditions. — File photo

While allowing the establishment of two more floating liquefied natural gas (LNG) terminals, the government has decided in principle not to allow any further energy infrastructure project at Port Qasim for security and safety considerations.

The decision was taken by Prime Minister Imran Khan–led federal cabinet a few days ago on the recommendation of the Defence Division, which expressed concerns about the growing concentration of oil and gas infrastructure facilities at Port Qasim.

“While taking note of the security concerns expressed by the Defence Division, the cabinet directed that it must be ensured that there was no further concentration of energy supply infrastructure at Port Qasim, and alternate sites should be explored, including land-based terminals. The Defence Division agreed to the arrangement.”

Through the Defence Division, the Pakistan Navy had opined that concentrating most of the energy supply sources at one place was not strategically advisable. It said a ban had been imposed on oil storages in port areas in 1984. But every time the permission for a new LNG terminal was granted at Port Qasim, assurances were given to the Defence Division that no further terminals would be allowed. “Unfortunately, these pledges had been repeatedly violated.”

Despite the Petroleum Division commitment that LNG terminal operators would receive capacity payments, officials report no capacity is available for upcoming terminals

The concerns were not unfounded in the aftermath of India’s attack on oil installations in Karachi in 1971. That resulted in a heavy fire and collateral damage. Therefore, the Defence Committee of the Cabinet (DCC) had imposed a ban on oil storages in port areas in 1984 and gave the Pakistan Navy the lead role in clearing proposals for the relocation of energy facilities away from the port areas. The need for a long-term plan for the relocation of energy facilities away from the port areas was also agreed upon.

However, despite repeated efforts by the Ministry of Defence, no such plan has been prepared so far. It had suggested that if economic compulsions so dictate, the Ministry of Energy should refer the matter to the National Security Committee (NSC) — the replacement for the erstwhile DCC — for undoing the recommendations of the Pakistan Navy or asking for its no-objection certificate (NOC).

The federal cabinet, however, agreed to a larger view of the members that two projects — belonging to Energas and Tabeer Energy and now at an advanced stage and commitment charges — should be allowed without hindrance. Otherwise, it would send a negative signal to foreign investors. Members were also of the view that the establishment of a maritime energy corridor was vital to ensure the country met its energy requirements.

Special Assistant to the Prime Minister (SAPM) on Petroleum Nadeem Babar also reported to the cabinet that the right of way (RoW) issue with the Sindh government had been impeding the implementation of the North-South Gas Pipeline Project and hence any commitment with investors could not be made so far. However, the issue had almost been resolved and the gas pipeline capacity allocation to terminal operators could also be made now.

These two terminals would be completed much before the North-South Gas Pipeline Project. There would be a gap of seven to eight months during which the companies were willing to operate on 30-40 per cent capacity. They would concentrate mainly on the Karachi market because LNG supplies would scale up over a long period of time.

Therefore, the cabinet directed the ministries of petroleum and defence to remove all hurdles within 30 days to facilitate the establishment and operationalisation of two additional LNG processing terminals in the private sector. The cabinet asked the Ministry of Defence to issue an “NOC within 30 days for the establishment of two new LNG terminals at Port Qasim”. Likewise, the Petroleum Division was directed to commit the allocation of capacity in the existing pipeline on a first-come-first-serve basis within 30 days.

Interestingly, the Ministry of Defence had on Feb 19, 2020 “assured the LNG terminal operators that NOCs would be granted upon the submission of relevant documents”. However, on June 4, the ministry conveyed that the “Pakistan Navy had certain observations with respect to the security of the project and was hesitant to grant NOCs despite the fact that NOCs for the existing two LNG terminals were issued by the Ministry of Defence” between April 2012 and June 2014.

It was also found on the record that the Maritime Affairs Wing of the Ministry of Defence had regretted granting an NOC to Energas Terminal at Port Qasim in October 2018, but it had issued one to Pakistan Gasport in December 2018. Therefore, security concerns appear to be selective.

The Ministry of Maritime Affairs complained that various inter-ministerial meetings had been instrumental in securing NOCs from various ministries and departments, but two outstanding issues were hampering the timely implementation of the project. It also put on the record that the Petroleum Division had committed in February that LNG terminal operators would be given capacity in the existing pipeline on a first-come-first-serve basis. But the representatives of gas companies reported in June that the capacity in existing pipelines was not available for the upcoming terminals.

Various stakeholders had been reporting that normal traffic was compelled to stay away from the main channel sometimes for weeks in the LNG offloading period because of safety conditions. Oil companies had been protesting over the blockade and the resultant higher transport charges of their cargoes.

The Port Qasim Authority had identified in 2011 Jharri Creek/Chann Wadoo as a potential LNG zone for future LNG terminals. Chara Creek was also identified as a potential site, but the concentration continued at the existing site. In view of the projected demand for LNG in the future, Jharri Creek was considered a suitable site because it had no adverse impact on the normal port traffic. The site was on an alternative channel and away from the main port. It could be connected through a pipeline network of about 25km. The drought at the location was also feasible to accommodate larger LNG carriers.

Published in Dawn, The Business and Finance Weekly, September 21st, 2020