Pakistan has finally started the journey towards deregulating the energy sector following stateowned Sui Northern Gas Pipelines Limited’s (SNGPL) permission to a private firm to use its infrastructure for transporting the imported liquefied natural gas (LNG) to end-consumers.
“The board of SNGPL today approved, in principle, pipeline capacity allocation for Energas for their upcoming LNG (import) terminal that will supply gas on a B2B (business-to-business) basis,” Federal Minister for Energy (Petroleum Division) Hammad Azhar revealed on his official Twitter handle on Friday. “This paves the way for private sector supply and availability of LNG across the country,” he said. An industry official said that the development was the beginning of a new era in the energy sector. “This (SNGPL approval) is a step towards deregulating the energy sector,” he said.
SNGPL took almost three years to allow a private sector firm to operate through its infrastructure, “as they stand competitors”. The firm will initially supply gas to its sister companies, which are currently the customers of SNGPL, it has been learnt. The private firm has been allowed to transport 300-350 million cubic feet of gas per day (mmcfd) through the SNGPL infrastructure. Initially, the forthcoming LNG import terminal was the project of a consortium of Lucky, Sapphire and Halmore. Recently, the Competition Commission of Pakistan (CCP) allowed the world’s largest LNG supplier, Qatar Energy (formerly known as Qatar Petroleum), to acquire 49% stake in Energas.
The foreign firm is acquiring the strategic stake through an investment of $100 million, it has been learnt. The new import terminal is expected to be constructed, start imports and transport gas to businesses within 14 months after SNGPL inks a gas transportation agreement (GTA) with it. The minister’s tweet suggested that the board’s approval was a step towards signing the agreement. Total cost of construction of the terminal is estimated at $500 million, including the construction of a jetty and acquiring a Floating Storage and Re-gasification Unit (FSRU) for a period of about 15 years.
Earlier, the federal cabinet and Oil and Gas Regulatory Authority (Ogra) gave their approval for connecting the new LNG import terminal with the country’s gas supply infrastructure. Tabeer – another forthcoming LNG import terminal in the private sector – has also received the government’s approval for using the infrastructure for transporting gas to businesses. Azhar’s latest tweet, however, did not mention its name.
The two forthcoming LNG import terminals are being termed “private” because the government would pay no capacity charges to them, whether it imports LNG or not. Contrary to this, the government pays up to $272,000 per day to each of the two existing import terminals when it does not utilise the facilities. Moreover, the government will not determine the price of LNG to be imported and sold by them to end-consumers in Pakistan.
They will find customers by selling gas at competitive prices. Each forthcoming terminal will have installed capacity to import 1,000 mmcfd of LNG, however, they will transport just 300-350 mmcfd until the North-South Pipeline project is completed. Their arrival would double the gas storage capacity of the country to 10 days compared to the existing five days. Besides, the government is working to deregulate the power sector by allowing third parties to buy electricity from producers and/ or produce their own electricity to sell to customers by 2023.
Controlling circular debt
“The SNGPL board has today agreed for the waiver of 66% Take or Pay clause for government owned LNG plants. In the long-run, this will help in reducing the capacity payments that the government has to pay power plants even when they are not supplying electricity,” Azhar said in another tweet. At present, the plants are bound to pay capacity charges to SNGPL on the days when they do not buy the committed quota of gas from the gas marketing company.
Pakistan has till now ignored the huge potential of bio-gas for too long. Sui Southern Gas Company (SSGC) has invited the expression of interest for producing bio-gas in its franchise area. “SSGC is expecting to produce 4-5 mmcfd through this endeavour as a pilot project,” the minister said. The bio-gas is produced through processing various kinds of organic waste.