KARACHI: The issue of the extraction deal between JJVL and SSGC has come under discussion in the country's legislative bodies. In a briefing held in Islamabad on Monday, the Senate Standing Committee on Petroleum recommended to SSGC to revisit its decision in the best national interest in conjunction with the best interest of SSGC.
Liquefied Petroleum Gas (LPG) constitutes 1.0 percent of Pakistan's energy mix. This consumption trend is primarily due to a much higher supply of indigenous natural gas at an affordable rate.
In the recent years, however, due to a widening demand-supply gap of natural gas, especially in the urban areas as well as due to higher kerosene prices, there has been an increase in LPG use.
Extraction of LPG/ NGL (Natural Gas Liquid) by JJVL started way back in 2005 mainly due to the presence of rich gas of Badin Gas Field owned by UEP which was producing 150+ mmcfd volume. Since it was not a pipeline quality gas and SSGC had the extraction rights of Badin gas, for extracting heavy hydrocarbon from the gas, Sui Southern Gas Co. Ltd. (SSGC) started processing it through a Royalty Arrangement under an Implementation Agreement (IA) with JJVL which was declared Null and Void by the Supreme Court of Pakistan (SC) in 2013.
Later, SSGC and JJVL underwent another arrangement under MoUs for various gas fields which continued till June 2018 when the SCP took suo motu action and declared termination of MoUs as valid. Subsequently SSGC stopped the supply of gas to JJVL and JJVL Plant remained closed for 6 months. Subsequently, JJVL submitted a proposal based on profit sharing before SCP.
The Court appointed a third party, A F Ferguson & Co. Chartered Accountants (AFFCO) as its deemed receivers. After consulting both SSGC and JJVL, AFFCO devised a provisional mechanism of revenue sharing to be finalized at a later stage. Consequently, an Agreement was signed between the two parties and submitted before SCP for its approval and validation via the Court order dated December 29, 2018.
The period of the Agreement was for 18 months that expired automatically when the term ended on June 20, 2020. The arrangement for the supply of gas was hence an interim one and was not for an indefinite time period. Any further extension of the agreement had to be based on technical requirements, commercial feasibility, and financial viability and by mutual consent of both the parties involved.
The decision to discontinue the agreement by SSGC was based on certain technical and commercial aspects. SSGC recently engaged the services of an International Consultant in order to conduct studies on the way forward. Summarily, the Consultant advised SSGC that current gas stream at Indus Left Bank Pipeline (ILBP) system was a lean, pipeline quality gas, which meant that it would not create any adverse effects on pipeline and its allied installations, if injected directly into the system. In other words, there would be no problem in adding the gas directly into Transmission pipeline network without any extraction of LPG/ NGL (Natural Gas Liquid).
The current shrinkage value at JJVL is around 8-10 MMSCFD. Since this volume will be available in SSGC's Transmission system, therefore, the gas utility can effectively deploy these volumes in its Transmission network. Multiple better commercial avenues would be available for consumption of this shrinkage volume.
Indigenous gas is much cheaper than LPG which is valuing Rs. 2,400 per mmbtu. Just for comparison sake, 8 to 10 mmcfd gas thus saved can feed a population of 400,000 households' equivalent to Sukkur city. It should also be borne in mind that as per OGRA statistics 76 per cent of JJVL production goes to the commercial and industrial consumers in Sindh. Hence it cannot be categorized in any way as a poor man's fuel.
Copyright Business Recorder, 2020
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