Government hiring experts to review gas import projects

KARACHI: State-owned Inter State Gas Systems (ISGS) has planned to hire local or international consultants for reviewing contractual arrangements of gas import projects to develop risk assessment and market-based pricing models, a document revealed on Friday.

ISGS, working under the auspices of the ministry of energy (petroleum division), is engaging commercial consultancy services to review and evaluate commercial and financial aspects of its long-term gas import and infrastructure development projects.

The objective is also to review and evaluate gas price formulation and periodic pricing review mechanism in view of global and regional historic and future developments/trends, highlight risks, and recommend strategies to mitigate the risks.

Major projects being pursued presently by ISGS include Turkmenistan-Afghanistan-Pakistan-India gas pipeline, north south gas pipeline, offshore gas pipeline and strategic underground storages.

Oil and Gas Regulatory Authority (Ogra) warned that the country is facing shortage of gas supply which would further increase in future. Gas shortfall is likely to more than double to 4.6 billion cubic feet/day (bcfd) within the next five years without the imported gas, the Ogra said in a report. The country currently produces around 4 bcfd of natural gas – accounting for 48 percent share in the primary energy mix – against demand of more than 6 bcfd. The demand-supply gap of gas was 1.447 bcfd during the fiscal year of 2017/18. The gap was expected to rise to 3.72 bcfd in the current fiscal year.

The mandate and order of work embodied by ISGS encompasses the energy security of Pakistan. The objectives of the company are to carry on the business of import, supply, transport, and sell natural gas and natural gas products through pipeline or other means.

With the assistance of the consultants, ISGS intends to develop a gas pricing model based on competitive pricing analysis with respect to gas import arrangements considering the international and regional gas trade, including spot trading, future markets, historic statistics, existing long-term deals, indexation estimates and prices set by competition on market exchanges and developments.

The factors that affect pricing may include geopolitical, social and national, international economics and affordability. The consultants would also evaluate the option for flooring and capping of benchmarks to be used for pricing formation.

ISGS further planned to undertake comparative analysis of gas with reference to other competitive, alternative fuels based on regional and international market statistics. The consultants would evaluate gas pricing with reference to global price benchmarks along with identification of the viable/feasible benchmark and different pricing options, the document said.

The consultants would also develop and analyse the transit/transportation tariffs for gas infrastructure projects, including cross-border pipeline projects and assist ISGS in price negotiations and furnishing appropriate counsel, recommendations and advice to the board of directors of ISGS, ministry of energy, and other governmental authorities.