KARACHI, March 9: Sui Southern Gas Company Limited (SSGC) has made public its plans to set up an integrated Liquefied Natural Gas (LNG) Import Project, which would be the first of its kind in the country.
Industry experts commented that natural gas (in any form) had never been imported into Pakistan before. The disclosure of SSGC's interest in import and setting up of integrated LNG Import plant was brought to the public eye through an advertisement in newspapers on Wednesday, in which the company sought applications from "world-class, international consultants/group of consultants for providing consultancy services for its proposed LNG project."
SSGC stated that to supplement its local natural gas supply sources, the company was considering import of LNG to provide additional gas supply to meet new growth demand from power plants/IPPs and industrial customers in particular.
The company said it had envisaged an integrated LNG import contract inclusive of procurement, transportation, storage and re-gasification and/or taking up of the liquefied gas from a specified point, transportation, storage and re-gasification facility to be set-up on a Build, Own and Operate (BOO) or Build, Own and Transfer (BOT) basis, in the Port Qasim Terminal or the Karachi Port Trust (KPT) area in Karachi. SSGC stated that it could also consider equity participation in joint venture/consortium.
As for the project, the company said that the expected delivery capacity would be 2.5 million tons of LNG per annum, equivalent to about 300 mmcfd, with the option for larger volumes of up to 3.5 million tons of LNG or approximately 500mmcfd of Natural Gas.
Industry experts explained that LNG (not to be confused with CNG) was natural gas in its liquid form. When natural gas was cooled to minus 259 degrees Fahrenheit, it changes to liquid.
The process is known as liquefaction. LNG weighs less than half the weight of water. There are 40 LNG receiving terminals located world wide. Japan, South Korea, the United State and a number of European Counties import LNG.
On receipt of LNG at most terminals, it is transferred to insulated storage tanks that are built to specifically hold LNG. When natural gas is needed, the LNG is warmed to a point where it converts back to its gaseous state.
This is accomplished using a regasification process involving heat exchangers. Experts said that the reason that gas was imported in LNG form was the ability to transport larger quantity, requiring lesser space over long distances.
Although the project would be capital intensive, import in LNG form is said to consume lesser time and money and is safer than transportation through pipelines.
Analysts thought that the reason that SSGC was opting to go for LNG import was to sustain profitability growth. Since gas transmission companies' (SSGC and SNGPL) earnings were linked to their Net Asset Base (operating profit being 17 per cent of Net Asset in case of SSGC), those companies had to keep up their capital expenditure (capex) plans.
From financial year 2005 to 2008, SSGC had drawn up capex plan of Rs35 billion. Accounts for the latest half term ended December 31, 2004 of SSGC showed that despite 16pc growth in net sales (due to higher number of units sold), there was a 5pc y-o-y decline in operating profits during the period to Rs1.1bn. "Operating profits were lower on account of relatively lower net capex booked by the company because deprecation charge was relatively higher than asset addition" commented an analyst at a stock brokerage house.
Another agreed that the primary reason for shortfall in earnings was low asset capitalization of Rs 0.9bn, 38% of total 1HFY04 capital expenditure of Rs 2.4 billion.
Energy experts have calculated that if crude oil prices remain above $30 per barrel, LNG import becomes feasible. "In essence, the plan to go into import of LNG is a diversification of SSGC operations, which primarily are transmission & distribution of locally discovered gas", said an industry watcher.
The current local demand of gas was said to be 3,500 million cubic feet per day (mmcfd) of which SSGC had share of 1,200 mmcfd. When the LNG Import Project comes on stream, it would increase supplies of gas from SSGC by 300 to 500mmfcd.
In an article in Financial Times, London of Friday, March 4, 2005, it is quoted: "LNG is emerging as one of the hottest sectors of the global energy business. By the end of the decade, analysts expect LNG plants to be churning out 250 million tons a year-double the level in 2003". The FT also noted that Qatar, which loaded its first LNG cargo in 1996 expects to become the world's largest supplier as early as next year."
At the Annual General Meeting of SSGC on October 24, 2004, shareholders had granted permission to the company to make a strategic investment of Rs5.1 million in setting up Inter-State Gas Systems (Pvt) Limited (ISGSL)-a subsidiary of SSGC, one of the purposes of which was stated to be "to review possibilities of import of gas in order to meet any domestic shortfall in the supply thereof".
Directors had reported that the projected demand would outstrip indigenous gas supplies by about 2010. "Both SSGC and SNGPL thus have to consider import sources for meeting their future demand.
The main option under current consideration is to import gas through one of three prospective trans-national pipelines from Turkmenistan, Iran or Qatar", directors told the shareholders. Most analysts are putting their bet on Qatar as the source of supply of Imported LNG to Pakistan, but Iran does not lag far behind.