Industrial consumers: PLL, SSGC may be allowed to auction off unutilized capacity of LNG

ISLAMABAD: The government is likely to allow Pakistan LNG Limited (PLL) and Sui Southern Gas Company (SSGC) to auction operationally-possible unutilized capacity of LNG to industrial consumers for a specified period and quota to be determined by the Petroleum Division, considering the socioeconomic agenda of government of Pakistan (GoP), downstream demand and plan of LNG imports, well informed sources told Business Recorder.

Sharing the details, sources said Pakistan has two LNG terminals presently. For Terminal-1, Engro Elengy Terminal Private Limited (EETPL) is the operator and SSGC is the customer. It has contractual regasification capacity of 630 MMCFD with a peak capacity of 690 MMCFD on best effort basis, as and when required.

For Terminal-2, Pakistan Gas Port Consortium Limited (PGPCL) is the operator and PLL has contracted capacity of 600 MMCFD with a peak capacity of 690 MMCFD on a reasonable endeavour basis, as and when required. The capacity of Terminal-1 is being utilized fully while the contracted terminal capacity of Terminal-2 is currently not fully utilized. This unutilized capacity could be offered to private parties.

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The Economic Coordination Committee (ECC) of the Cabinet, in its decision of July 28, 2020, approved, in principle, the concept of auctioning the government contracted unutilized capacity of the LNG terminals.

The decision was ratified by the Cabinet on August 11, 2020. Since the decision, the PLL undertook four separate processes during the months of September 2020, January 2021, September 2021 and November 2021 to offer its unutilized capacity at Terminal-2 to private parties. All these efforts remained unsuccessful as either none or ineligible applications were received.

The companies, which earlier showed interest, became hesitant to engage in the capacity allocation process for a variety of reasons including a short-term allocation of unutilized capacity and exorbitant international LNG prices, etc. These issues, along with other hurdles to Third-Party Access (TPA) to LNG terminals, were brought to the notice of the Petroleum Division by the stakeholders.

In order to overcome these issues, Petroleum Division held several consultative sessions with the World Bank team, along with their international consultants, subject matter experts and relevant stakeholders including OGRA, PLL, Sui Companies, terminal operators, etc.

After detailed deliberations, majority of the issues have been resolved, while the matters requiring amendments in the existing decisions, rules and approval of the government have been identified. These include: (i) auction of the unutilized capacity to all consumers may create market distortions, furthering elite capture and thus damaging public interest.

Therefore, only industrial consumers and their consortia may be allowed to be eligible to get the aforementioned un-utilized capacity exclusively for their own use, through competitive auction, for a specified period and quotas, as determined by the Petroleum Division, considering the GOP’s socioeconomic agenda, downstream demand and plan of LNG imports; and (ii) industrial consumer(s) requiring transportation of gas for self-consumption.

In the existing system envisaged under Third Party Access Rules, 2018, the industrial consumers of RLNG have to rely on licensed shippers and transporters to offload and transport the LNG they purchase.

The shippers are also required to be the owner of the gas to inject and transport it through the Sui system. Therefore, such industrial units are dependent on the GOP and its entities for supply of RLNG, thereby burdening the GOP with export or other such subsidies to be given to such units.

There is a need to streamline the system of import of RLNG by industrial consumers only for their own use through Third Party Access framework. Inclusion of the concept of “industrial consumer” in OGRA Gas (Third Party Access) Rules, 2018, who require transportation of gas for self-consumption, will be a pre-condition to materialize this concept.

The industrial consumer(s) will, thereafter, be able to have access arrangements with transporters, without having a shipper’s license, in order to get their gas transported through the pipeline network of the transporters. Amendments in the relevant provisions of OGRA Gas (Third Party Access) Rules, 2018, and LNG Policy, 2011, will be required to put in place the requisite regime for import of RLNG by industrial consumers for their own use.

OGRA has proposed amendments in the relevant provisions of the Gas (Third Party Access) Rules, 2018, to the Cabinet Division to place them for approval of the cabinet

On a three-month restriction in the ECC Decision, the experts have noted that majority of stakeholders have expressed reservations about the short-term allocation process due to non-availability of short term LNG contracts of three months. Besides, concerns of the downstream consumers about uncertainty of supplies beyond three months also discourage interest from the consumers.

In case the total requirement of interested parties exceeds the total offered capacity, the mechanism in place is based on proportionate allocation of available capacity in the existing Third Party Access regime. Such a mechanism is not relevant in the proposed regime of industrial use based on competitive process for selection of the highest bidders from amongst ’industrial consumer/s.

After explaining the case, Petroleum Division has submitted following proposals for consideration in the proposed Amendments in the LNG Policy, 2011: (i) amendment in the ECC decision of July 28, 2020 to the extent of TPA to Government contracted unutilized capacity, i.e., instead of “on short-term rolling basis (3 months)”, relevant state-entity (SSGCL for 1st Terminal and PLL for 2nd Terminal) be allowed to auction the operationally possible unutilized capacity, for a specified period and quota, to be determined by the Petroleum Division, considering the GOP’s socioeconomic agenda, downstream demand and plan of LNG imports; (ii) only ‘industrial consumers’ shall be eligible to participate in the auction and exclusively for their own use; (iii) interested eligible parties shall bid for the available/ offered capacity, above a baseline service charge of $0.05/MMBTU, in addition to OGRA determined costs (terminal charges, LSA/ OSA management fee, etc., as per current practice); (iv) capacity to be allocated to the interested eligible party(ies) who have obtained necessary regulatory authorizations (if any) and related contractual arrangements;(v) the SOEs and industrial consumer/s’ will engage in borrowing and lending of LNG molecules, without any financial exchange.

OGRA shall devise and implement reconciliation mechanism for molecule exchange while applying lending and borrowing arrangement for TPA, in consultation with stakeholders. It shall also put in place a mechanism to ensure that the relevant state entity (ies) remain financially neutral in the transaction.

Copyright Business Recorder, 2023