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December 1, 2020

Govt concedes inability to meet gas shortfall

Business

December 1, 2020

ISLAMABAD: Government on Monday expressed its inability to meet a widening gap in demand and supply of gas in the country, giving an excuse of a legal constraint in subsidising imported LNG.

Prime Minister’s aide Nadeem Babar said there are legal constraints to add liquefied natural gas (LNG) into gas pool.

“LNG has been declared a petroleum product (petrol) and not natural gas, consequently, LNG is ringfenced from local gas,” said Babar, who is the assistant to the prime minister on petroleum.

“That’s why OGRA [Oil and Gas Regulatory Authority] cannot include it in the gas pricing and the government cannot provide cross-subsidy mechanism to meet all the demand of gas.”

Babar was addressing a meeting on pricing mechanism of gas and LNG. Minister for Energy Omer Ayub Khan and provincial ministers attended the meeting. He said the rate of production of local gas has decreased over the years, which contributed in supply demand gap in gas sector.

“Follow-up sessions will be continued between federal government and provinces to formulate the gas tariff mechanism nationwide,” he said.

Babar told a news conference after the meeting that the government would reduce circular debt of Rs300 billion in gas sector to zero during next four to five years. “Gas will not be curtailed to export oriented sector in line with direction of cabinet committee on energy. Gas supply to CNG and non-export industrial sectors will be curtailed during winter season.”

The prime minister aide defended increase in margin of oil marketing companies, which he said are in line with the law.

In September, Babar warned of shortage of 250-400 million metric cubic feet per day (mmcfd) gas in the system of Sui Southern Gas Company that would affect all sectors, including industrial and domestic consumers. Sui Northern Gas Pipelines that feeds Punjab, Khyber Pakhtunkhwa and Kashmir were also expected to face 300-350 mmcfd in peak winter season. Delay in issuance of no-objection certificate by Sindh to lay a new gas pipeline was then associated with the crisis.

Energy minister said gas sector circular debt could rise to Rs1,000 billion if energy prices are not increased.

Provincial representatives asked the federal government to provide gas supply-demand data to prepare a formula to recover full cost of LNG from consumers.

The Ogra emphasised LNG import as a best available option to meet the burgeoning energy shortfall. Overall, gas demand stands at around 7.5 billion cubic feet/day (bcfd), while the indigenous production is falling short by 3.5 bcfd.

The meeting explored the issues, challenges and plausibility of implementing a country-wide sustainable and affordable gas pricing mechanism.

Provincial representatives asked the petroleum division to prepare data-based formula for pricing mechanism of gas sector.

Currently, two LNG terminals are handling 1.2 bcfd LNG that would be enhanced to 1.3 bcfd gas after completion of pipeline approved in 2015 to transport gas through over 1,100 kilometres from southern to northern regions of the country.

The government is expected to start the project after the apex court directed businesses in August to pay off outstanding gas infrastructure development cess that is over Rs400 billion.