State-run utilities sign accords to supply RLNG

Three proposed power plants in Punjab

KARACHI: Four state-run companies have signed agreements to supply 600 million metric cubic feet/day (mmcfd) re-gasified liquefied natural gas (RLNG) to 3,600-megawatt power plants being set up in the Punjab, a bourse filing said on Tuesday. 

A notice issued to the Pakistan Stock Exchange said the Pakistan State Oil (PSO), Sui Northern Gas Pipelines (SNGPL), Sui Southern Gas Company (SSGC) and Central Power Purchasing Agency (CPPA) have signed the ‘tripartite agreement-2’ and gas sales, reimbursement and gas transportation agreements to supply RLNG to the proposed three gas-based power plants.

“We have signed the agreements as per the requirement of the ministry,” said an official at SNGPL. “Now, the government will decide the course of action.”   The official said further details on LNG import and gas supply have not been communicated to the utility.

SNGPL has already signed a gas sales agreement with the three power plants to be based on RLNG as well as reimbursement agreement with the CPPA.

The federal government wants the fast-track construction of the proposed three power plants and their completion by the end of 2017.

The government will set up two combined-cycle power plants based on RLNG in Balloki area of Kasur district and Haveli Bahadur Shah of Jhang district. The third one will be set up in Bhikki of Sheikhupura district.

Rapidly depleting gas reserves are increasing reliance of power generation plants on alternate expensive fuels, such as furnace oil and high speed diesel. In the past, a substantial increase in electricity tariffs was due to rise in the international oil prices. 

The government is now looking for other cost-effective options, including LNG. It is also struggling to ensure energy supply at the affordable rates. Installation of new RLNG-based power plants is a step in this direction.

Pakistan is currently facing a severe shortage of natural gas for its electricity generation and industrial use. Various estimates put the supply demand-gap at more than two billion cubic feet/day.

Early this year, Pakistan and Qatar inked agreement for the supply of one billion dollars worth of LNG to Pakistan to help the country meet its energy shortfall.

In March 2015, Engro set up the country’s first LNG terminal. At present, it is receiving three ships (equal to an average 300 mmcfd) every month from Qatar, and one ship (100 mmcfd) from Switzerland-based commodity trading company Gunvor Group.

The government is about to award the contract for the second LNG terminal to be built at Port Qasim. Several investors want to set up such terminals.

Previously, SNGPL conditioned the general sales agreement with the signing of a tripartite accord among the PSO, SSGC and SNGPL and reimbursement agreement with the CPPA.

Under the gas sales and reimbursement agreements, the CPPA will take the direct responsibility of SNGPL’s failure in delivering RLNG to the three proposed power plants for any reason. In that case, the CCPA will also pay the capacity charges to the power plants and penalise the entity, which is found at fault in the LNG supply chain.