The government has been cautioned that increase in gas tariff in the near-run would have adverse impact on economic growth with social and political repercussions in the form of extreme reaction by the consumers.
The final report on evaluation of economic value of natural gas in the various sector of the economy was submitted to the Planning Commission by the Hagler Bailly Pakistan (HBP) with a set of recommendations for management of natural gas supply in the short and long-run. The firm was hired to assist the government in formulating a gas load-management policy through which optimal use of natural gas can be achieved to ensure highest economic return.
According to recommendations, pricing mechanism in the near-run would increase the cost of production thereby reducing demand for goods and services, which will hinder economic growth. The production may have to be curtailed in the absence of infrastructure for delivery of alternative fuels and energy forms. In addition, there will be adverse social and political repercussions in the form of extreme reaction by the consumers.
It was recommended to the government to go for gradual price changes as a regulatory instrument for the long-term to allow consumers to adjust to price increases and to provide ample time for construction of infrastructure for delivery and use of alternative fuels and in the near-run, optimal use of natural gas should be achieved through allocation of natural gas on economic basis.
The recommendations for management of supply of natural gas in the long-run included replacement of natural gas with alternatives for domestic production of fertiliser, power generation, captive generation as well as fuel for motor vehicles, residential water heating and space heating. The report recommended that imported fertilizer should replace domestic production of fertilizer as the cost of imports ($17.26/MMBtu) is less than the economic cost of delivered natural gas ($20.3/MBtu) for the fertilizer sector. In the long-term, no new fertilizer plants should be set up in the country.
Fuel oil should continue to be used as the power generation fuel for steam turbine plants since the economic cost of FO ($17.42/MMBtu) is lower than the economic cost of delivered natural gas for the power sector ($20.33/MMBtu). The economic value of natural gas for captive generation is $19.88/MMBTU, whereas for heating use it is $18.35/MMBTU, both of which are lower than the economic cost of delivered natural gas in the industrial sector ($20.33MMBtu). Thus the industry should switch to FO as replacement fuel.
Motor gasoline should be utilised as fuel for vehicles instead of natural gas since motor gasoline is more economical than natural gas delivered to CNG stations. The economic value of natural gas in the transport sector is $24.37/MMBTU in comparison to the $29.21/MMBTU, which is economic cost of natural gas delivered and compressed for use as CNG. In the long-term, no new CNG plants should be set up in the country. Solar water heating is the economic option in comparison to natural gas for water heating in the residential sector because of lower cost.
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