Wednesday August 17, 2022

Lost in the flare

November 28, 2021
Lost in the flare

LAHORE: We are short of natural gas and must import costly RLNG (regasified liquid natural gas) to operate our power plants but at the same time we are burning low-BTU (British thermal unit) permeate gas in air instead of diverting it to power plants that could use it.

Permeate gas is a form of low-BTU gas, which is high in sulphur content and has no alternate use. This is different from the pipeline gas and given its lack of alternate use is generally flared, which results in a permanent loss of this natural resource since the energy cannot be recovered.

We cause the same pollution by flaring it that would be caused by consuming the gas in some power plant.

Our experts mostly neglect the importance of huge and precious natural resources. Two decades back it was the LPG (Liquid Petroleum Gas) which was flared as we did not install processing units to purify it to use as an energy source.

Now it is permeate gas. A glaring example in this regard is the huge resource of permeate gas that is flared from the Kandkot area as its only user the Guddu power plant (a public sector power producer) since long has stopped producing power.

Guddu was producing around 500 MW low-cost power through the permeate gas.

As the gas plants in Guddu stopped producing power the state is procuring power from plants that produce expensive power from imported fuels. Pakistan needs to take advantage of the available yet inadequately utilised local fuel sources.

Pakistan’s import bill for energy products has more than doubled to $4.6 billion during July-September 2021, as compared to $2.3 billion in the same period last year. Today, imported fuel generation is 40 percent, while indigenous and local clean resources are 60 percent including local gas, coal, hydro, and renewables.

While the nation’s electricity generation surged in September 2021, the share of indigenous gas-based power plants continued to record a decline. While the indigenous fuel-based plants are becoming less competitive owing to additional costs like Gas Development Surcharge (GDS), no such charges are levied on imported fuels. As a result, IPPs operating on RLNG and imported coal have ranked higher on the merit order and received higher dispatches due to a lower variable cost component.

To make matters worse, we have underutilised low-BTU gas reserves due to inadequate allocations.

The gas not utilised by Guddu must be to be allocated to ensure cheap electricity generation as well as revive the revenue stream for PPL from otherwise idle indigenous gas.

Thus, we need to ensure all the indigenous gas resources are optimally utilised by correcting allocation and price anomalies.

In this backdrop, what is evident then is that generation of energy from indigenous resources is a far cheaper option, and therefore, the country and its power regulators need to make the most out of its local fuels to ensure energy security and reduce the import bill.

One such source proven to be successful for more than a decade is permeate gas.

Currently, two plants – Engro Powergen Qadirpur Limited (EPQL) and Fauji Foundation operate on low-BTU gas to produce 217 MW and 187 MW of electricity respectively.

Different methods of pricing strategy in the market can incur significant effect on such power plants to have a different approach altogether towards electricity generation. Imported fuel prices are set by market forces and hence, results in efficient pricing whereas local gas price is regulated and highly inefficient that negatively impacts pricing of such power plants ultimately leading to their ouster from the generation mix.

Therefore, the policy makers need to provide a more competitive playing field to indigenous fuel-based plants who are already at a disadvantage in terms of cost.

Talking specifically about permeate and low-BTU gas, these should be priced in a way to get maximum dispatch ensuring full utilization, given that such fuel options have limited opportunity cost and alternate uses.

This will result in higher revenues to local gas producers, lower cost of power generation and reduce drain of forex on import of fuels. These plants that run on permeate and/or low-BTU gas should be ‘must run’ plants so their output can be maximised, and consumers can benefit from affordable, low-cost energy.

If attention is focused on awarding further generation to low-BTU gas plants, it will help the government’s effort to lower power generation cost, benefit the customers and save the country in terms of foreign exchange.

Decisions must be taken without wasting time in bureaucratic red tape. Millions in foreign exchange are being lost every week because of this holdup.