LAHORE: The discontinuation of gas supply to Jamshoro Joint Venture Ltd (JJVL) for domestic LPG production and separation of natural gas liquids (NGLs) for exports has pushed the country towards larger imports and a significant financial loss to the Sui Southern Gas Company Ltd (SSGCL).

Sources told Dawn on Friday that SSGC has not extended the contract with JJVL — after expiry of the previous one in June 2020 — despite approval by the Economic Coordination Committee (ECC) in August to resume the supply of gas to it for the extraction of LPG and NGLs. The federal cabinet had also ratified the ECC decision.

“In spite of this, the gas supply has not been resumed to JJVL on a non-related issue of payment of petroleum development levy (PDL), an issue pending before the Lahore High Court,” a JJVL executive claimed. He termed the SSGC action as coercive and against the court directions to the contrary.

The JJVL executive, who refused to give his name, said the delay in the extension of the contract between his company and SSGC has resulted in a loss of 15 per cent of the country’s domestic LPG production, which directly affects 2.5 million households without access to the national gas grid across the country.

The projected losses to SSGC because of delays in the resumption of JJVL contract during the six months between July and December is estimated to be Rs532.9 million. According to JJVL sources, SSGC had earned Rs1.1bn from the gas processing company during one and a half years between January 2019 and June 2020.

The SSGC profit and loss estimates are based on a report of the A.F. Ferguson Company, according to the JJVL executive. Based on supplies from JJVL, he said, the substitution of LPG through costly imports not produced by JJVL costs the country over $40 million in foreign exchange annually besides affecting over $12m of NGL exports. JJVL has contributed to nearly 50pc of the operating income of SSGC for many years as per SSGC audited accounts.

JJVL was extracting up to 420MTD of extractable liquids that is equivalent to 7-8mmcfd of gas (shrinkage) before injection of gas in the SSGC distribution network. The extraction at JJVL also saves SSGC losses on account of unaccounted for gas (UFG). LPG extraction also saves massive costs on maintenance of the gas utility’s pipeline system and makes it safer by preventing damage to the network. Additionally, JJVL says, the downstream investment in the LPG value chain has created about 5,000 jobs, which are at stake because of the discontinuation of gas supply to the gas processor. To date, since 2005, JJVL has produced over 1.7m tonnes of LPG and over 600,000 tonnes of NGLs.

JJVL was operating under an agreement approved by the Supreme Court of Pakistan. The agreement expired on June 20 last year, resulting in production of about 400MTD of LPG and 120MTD of NGL went offline and LPG had to be substituted through imports. SSGC says the agreement was not profitable for it and hence discontinued.

An SSGC official who asked anonymity said the agreement with JJVL was not resumed because the matter is pending legal opinion from the federal law ministry since the ECC approval.

Published in Dawn, March 13th, 2021