Saturday May 18, 2024

Forced gas cut hits $30m in revenue losses in six months

By Khalid Mustafa
May 07, 2024
A representational image showing A technician working at a gas field. — AFP/File
A representational image showing A technician working at a gas field. — AFP/File

LAHORE: The exploration and production (E&P) companies have suffered a revenue loss of over $30 million in the last six months due to forced gas curtailment, with associated oil and LPG curtailment totaling 130,000 barrels and 7,000 MT, respectively.

The curtailment, which has reached 6,000 mmscf (Million Standard Cubic Feet per Day), has resulted in a daily revenue loss of $2 million, with critical wells already loaded up, leading to a permanent loss of reserves.

“If the current situation of forced curtailment persists unresolved, then the E&P companies, especially the foreign companies, will have to reconsider their future investment plans in the country since their confidence in the government to protect their rights and interests would have been severely shaken,” said a senior official who was part of the meeting held here on Monday on the forced curtailment of gas flows from local gas fields by the Sui gas companies to ease out the gas pressure in the pipeline distribution system that has reached over the dangerous mark of 5,000 mmcft.

The DG PC (petroleum concessions) and DG gas met with the top management of E&P companies—OGDCL (Oil and Gas Development Company Limited), PPL (Pakistan Petroleum Limited), MPCL (Mari Petroleum Company Limited), POFL (Pakistan Oil Field Limited), ENI, PGNiG (Polish Oil & Gas Company), PSO (Pakistan State Oil), PLL (Pakistan LNG Limited), and MOL Pakistan, United Energy Limited (UEP), Pakistan and Sui Northern and Sui Southern. However, it was decided that another meeting would be held in the following week to seek a solution as all the stakeholders came up with their viewpoints.

The E&P companies also said that the current gas curtailment crisis could severely damage critical wells, leading to permanent loss of precious hydrocarbon reserves, and will also dampen the confidence of the E&P companies to invest in future exploration endeavors, thereby causing an accelerated decline of natural gas production in the country, which is a much-coveted indigenous source of energy due to its affordable prices.

The meeting revealed that the current situation is a result of gross mismanagement by the Ministry of Energy (Petroleum Division), which is unable to bring Sui Southern Company Limited (SSGC) and Sui Northern Gas Company (SNGPL) on the same page to manage the situation.

It became clear in the meeting that despite the fact that SSGC has both spare capacity in its transmission line as well as unfulfilled gas demand from its industrial and power generation consumers, yet both companies seem reluctant to work in a synergic and coordinated manner to swap the gas, even for a limited time, to ease the pressure in the network and provide a quick resolution to the issues due to the pricing differences between LNG and indigenous gas. It is clear that neither of the companies wants to take gas at the high-priced LNG from the network because their end consumers cannot afford it, and hence demand for gas at the high LNG price reduces significantly, resulting in its accumulation in the network and causing curtailment of indigenous production.

It was also unclear why both SNGPL and SSGC are persisting in rationing the supply to the domestic sector despite being in an oversupply environment for the past month.

When asked about it in the meeting, DG Gas had responded that the Sui companies are under strict instructions from the Petroleum Minister not to supply LNG to the domestic sector, which is baffling and not understandable at all since any LNG diverted to the domestic sector would be immediately replaced by gas from indigenous sources, thus netting off the position and simultaneously providing relief to the distressed E&P sector without any fiscal detriment to either the government or the Sui Companies themselves.

This is possible because the natural gas, either sourced from imported LNG or indigenously produced, is essentially the same commodity (with the same chemical composition and physical properties) and hence can be instantaneously swapped at different points in the network without causing any fiscal distortions due to its source-dependent price differentiation.

It appears that the Minister of Petroleum is unable to understand the basic fundamentals of the industry and is adamantly following a preconceived layman's approach with regards to this critical matter, exacerbating the problem and resulting in devastating and wide-ranging impacts on the industry, not just in the short term but also in the long term.