ISLAMABAD: The country is likely to face acute shortage of gas in winter as the State Owned Entities (SOEs) are reluctant to import LNG in accordance with government policy.
In July 2019, the Economic Coordination Committee (ECC) had allowed private sector to import LNG through excess terminal capacity under third party access mechanism. However, even after the passage of more than 15 months, some vested interests in the government and other groups have posed legal and operational hurdles to deter private sector to import LNG. As a result, Pakistan has been deprived of access to gas at cheaper rates and a shortage of 1.5 billion cubic feet per day is imminent in winter.
Background interviews with energy sector players revealed that OGRA has issued Third Party Access Rules only in draft form and did not engage market players before finalizing the Rules as required from a regulator.
The energy sector players argue that despite filing proper applications, OGRA has not issued any RLNG marketing licence to Exxon, Shell, Mitsubishi, Total and other private sector players who are keen to invest in Pakistan.
"The government should remove barriers to encourage investments for the development of LNG infrastructure," the sources added.
Globally, more than 80 million tons of LNG trade is handled under third-party access regime that allows greater efficiency and competitiveness in the overall LNG supply chain.
Currently, two LNG terminals are operating in Pakistan with a total re-gasification capacity of approximately 1,200 mmcfd. As the development of a new LNG terminal takes up to three years, Pakistan will not be able to handle higher LNG import shipments without removing hurdles on import capacity and storage expansions of existing terminals. Expansion of the current LNG terminals would provide the additional capacity to benefit from cheap LNG available in the spot market and provide greater operational flexibility as well.
For terminal expansion, Engro Elengy (EETL) supported by Royal Dutch Vopak, the largest terminal operator in the world, has already signed an agreement with Excelerate Energy L.P., a pioneer and market leader in innovative floating LNG solutions, and secured a larger floating storage and regasification unit (FSRU) that can increase its send out capability by more than 150 mmcfd within a few days subject to regulatory approvals that have been pending for more than a year now.
M/s Shell has access rights to this added capacity of EETL and based on its global portfolio and expertise, it can bring in competitive and reliable LNG supplies to help Pakistan meet energy shortages.
Similarly, the other terminal operated by Pakistan GasPort Consortium Limited (PGPCL) in partnership with Trafigura can add additional regasification capacity of up to 90 mmscfd within a matter of weeks. Both expansions are being progressed by private players like EETL and PGPC without any capacity commitments by the government, which will facilitate market development and mitigate any risk of circular debt.
However, both expansions are facing bottlenecks by the government bureaucracy which has yet to approve third party access on both the terminals, despite Economic Coordination Committee of the Cabinet approving the same multiple times.
Last month, the government granted provisional permission to developers, including partnerships with Exxon Mobil and Mitsubishi to set up new LNG import terminals. However, these terminals, with a capacity of more than 1 to 2 billion cubic feet, will be built over the next three years.
Third-party access of existing terminals is the only short to mid-term solution to increase gas capacity in the system, but unfortunately simple approvals have faced inordinate delays.
Copyright Business Recorder, 2020
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