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Wednesday February 28, 2024

Gas crisis imminent: Govt refuses to procure costlier LNG

December 16, 2020

ISLAMABAD: The government has decided not to procure expensive LNG for the first 18 days of January, 2021 that Pakistan LNG Limited (PLL) attracted in response to urgent tender bids, which might cause a massive gas crisis in the first month of the year, top officials privy to the development confided to The News.

“This will result in stopping the RLNG supply to the power sector in January and increasing reliance on power plants based on diesel and furnace oil for electricity generation. In the winter season, hydel power generation also goes down to the lowest ebb.”

The question arises whether the current situation could have been averted if the government had decided to float tenders in August-September for the winter. It is being questioned if almost one month before opening of bids with 10 days validity period is a faulty strategy or a design to benefit the furnace oil and diesel lobby in power sector.

Confirming the decision, an official said: "Yes, we have decided not to procure LNG cargoes that the bidders offered at 26-30 percent of Brent. The price is even higher than diesel. Three LNG trading companies that participated in the urgent bids opened on Monday last included DXT, EDNOC and Tarfigura. For delivering LNG cargo on Jan 8-9, DXT offered bids at US$15.28 per MMBTU equal to 30 percent of Brent. Whereas, Trafigura submitted its two bids, one for 8-9 January slot at US$19.8 per MMBTU (40 percent of Brent) and other one for 17-18 January slot at $15.95 per MMBTU (31 percent of the Brent). EDNOC gave the lowest for January 17-18 at US$12.95 (26% of Brent). This cost is not affordable and even after the decision of not purchasing the said LNG, the government that arranged 11 LNG cargoes last January 2020, will continue to have the same number of vessels in the upcoming January,” another senior official confirmed to The News. "The costly LNG will not only increase the cost of electricity, but also the costly LNG pumped to domestic sector will not be recovered forcing the government to face huge monetary losses.”

The Pakistan LNG Limited (PLL), the official sources said, is reportedly trying to manage already-awarded LNG cargoes with more filling of LNG from trading companies, so that the shortage of gas could be reduced in the first 20 days of January 2021. However, independent LNG industry sources say that some influentials in the corridors of power are elated that reliance on furnace oil for electricity generation will increase.

Against this backdrop in January 2021, apart from closing down the CNG sector, the government is seriously considering halting RLNG supply to the power sector and diverting it to the domestic sector. It is pertinent to mention that the government failed to recover the cost of RLNG amounting to Rs78 billion injected to the domestic sector in the last two winter seasons. Against the shortage of LNG, the government may be forced to inject another Rs60 bn worth RLNG to overcome the domestic winter needs. This would further add to the existing financial strain of total unrecovered cost of RLNG used in the three winter seasons, to a whopping Rs138 billion. This time the volume of RLNG used by the domestic sector will further increase as the local gas (system gas) production has alarmingly gone down to 3.2 billion cubic feet per day from 3.8-4.0 bcfd.

Since the government cannot afford any backlash from the masses due to gas crisis and more so amid the ongoing Pakistan Democratic Movement drive, it will massively continue to divert the RLNG to the domestic sector. This scenario will have further repercussions leading to closure of captive power plants meant for general industry and export industry and in return the export industry will be offered electricity at the rate of 7.5 cents per unit.

After closure of RLNG power plants supply, 350 mmcfd RLNG will be diverted to the domestic sector in January. The power sector industry sources confirmed that furnace oil based power plants Pak Gen and KAPCO have started generating electricity. PARCO has also started supplying furnace oil to K-Electric.

Similarly, the coal-based electricity generation will be encouraged more. Likewise, electricity based on thermal power houses will increase manifold as the hydel generation had tumbled from over 9,000 MW to 3,000 MW and will further go down to 1,000 MW during the annual canal closure from the last week of December to mid January.