RLNG is no panacea

It is increasingly getting clear that RLNG has issues of irregular pricing and there are other supply chain issues like availability of infrastructure. In the wake of dwindling local gas production, the government of Pakistan is almost frantically looking for closing the demand-supply gap. It is trying to divert gas from captive power plants to other sectors, a move that has been opposed by the textile sector. It appears that RLNG is no panacea, as it appeared earlier. There are many issues. Although, RLNG will remain a major gas resource in the light of dwindling local supplies, for energy security and stability, it may be wise to add to resource diversity by examining the prospects of alternative sources. In this space, we would examine the prospects of liquid fuels in meeting the fuel supply gaps of power plants.

Substantial investment has been made in RLNG combined cycle power plants which are highly efficient in terms of energy consumption. Gas supply to these plants had to be curtailed in last December from 350 mmcfd to 240 mmcfd due to heavy winter gas demand by the domestic sector; both supply and pricing issues were the possible reasons. LNG prices reached unaffordable high levels in the same period. High LNG prices in winters are a routine matter, but this winter, it became extraordinarily high.

Consequently, RFO continues to be used which has become cheaper than gas in many instances. However, only steam plants can use RFO. RFO cannot be used in more efficient Gas Turbines Combined Cycle power plants. Instead, diesel has been used. Diesel is very expensive; besides, it diverts supplies from the transport sector. Diesel-based power costs twice — Rs 15-20 per kWh as opposed to Rs 7-10 for RLNG even on combined cycle power plants.

Gas demand has been increasing. KE has power shortage. It has to install a power plant on an urgent basis for which gas has to be provided out of current infrastructure. LNG terminals utilization has been erratic as well for a variety of reasons. It is very difficult to balance RLNG supply with demand on an hourly basis. Excess may have to be vaporized, if such intricate balance is not maintained. There are Take-or-Pay limitations as well. In the coming years, demand-supply gap may widen due to infrastructural issues. LNG terminals are still on paper. Pipeline capacity is limited and may not come up in adequate time horizon matching the demand.

From this perspective, it may be advisable to look into other liquid energy sources which can be utilized in power plants. These are Naphtha and Condensate. Naphtha is produced by oil refineries as a byproduct. For want of Naphtha’s local utilization in the form of a Naphtha cracker facility that could produce petrochemicals (plastics), Naphtha is exported. Condensate is also exported. Some is utilized by oil refineries. Condensate is produced from local gas production. It is a lighter crude oil that is suspended in gas stream. In earlier days, it used to be utilized as gasoline.

In many jurisdictions, Naphtha has been used in gas turbine power plants. In India, some 11000 MW of such capacity has been on Naphtha. In India, however, there is other better utilization of Naphtha for producing petrochemicals. Similarly, condensate has also been used in gas turbines. It is a question of economics and availability. An added advantage of liquid fuels is storage possibilities, while gas cannot be stored, at least, in the current circumstances when there is no gas storage facility.

Altogether, in the year 2018-19, around one million ton of Condensate and Naphtha had been exported; condensate exports were of 553,907 tons, while 418,941 tons of Naphtha was exported. Naphtha exports have been going down. A few years back, it was exported as much as one million tons. Perhaps, its local use has increased for high-octane gasoline production. Recently, PPL has decided to export 400,000 tons of Condensate. This indicates an adequate surplus of both Naphtha and Condensate.

In the instance circumstances, KE may be well advised to look into these resources to use it partially or wholly, instead of solely depending on GoP promises to allocate gas. Karachi has been suffering from power shortages. In the coming years it may become even worse in the absence of both capacity and energy supply reinforcements. GoP may also like to look into the prospects of using Naphtha/Condensate, especially in the intervening years.

Afore-mentioned is proposed as an interim solution till the gas sector supply chain is stabilized which may not take less than 5 to 7 years, although longer term issues of energy security and diversity would remain. One of the two — Naphtha or Condensate — should be able to provide the gap balancing role. The large gas demand variation between summer and winter would remain possibly with large LNG price variations. It is always good to build options.

Condensate, however, is flammable. It has to be stabilized before it is transported. As condensate is being exported regularly, stabilization equipment may have already been there. There may be economic issues as well. Condensate is sold at crude oil prices or may be at a slight premium. At 60 USD/bbl, condensate price should be around 10 USD/MMBtu. The winter price of LNG can be 14 USD/MMBtu plus 2 USD processing and transport margin. It is in the winter that there is demand-supply gap which is likely to widen with time, in addition to pipeline infrastructure issues. Naphtha can be cheaper than condensate.

Finally, the glitter of LNG is fading, as the LNG terminal issues and the recent price volatility and supply issues have been experienced. There is no better solution than local gas. Local gas is cheaper almost by 50% on the average. More attention should be paid to the development of local resources.

(The writer is former Member Energy, Planning Commission and author of several books on Energy sector)

Copyright Business Recorder, 2021