ISLAMABAD: Gas shortfall in winter 2021 has been estimated at 500 mmcfd (with 9 percent depletion of natural gas reserves each year) against 300 mmcfd in winter 2020.
The RLNG price for consumers of both gas companies - SNGPL and SSGCL was raised by $ 3.8 per mmbtu in December 2021 as compared with January 2021. The notified price of RLNG for both gas companies was $ 8.7316 per mmbtu in January 2021 which rose to $ 12.6238 per mmbtu in December. The impact on the public given the rupee erosion from a low of 152 rupees to the dollar to the high of over 178 rupees to the dollar today was significant.
Domestic gas, priced at Rs 330 per mmbtu, is being sold to old connections (households/commercial/industrial) and the shortfall is met with RLNG import which is provided at subsidized rates. In addition, export industry and fertilizer industry is being provided gas at the subsidized rate of 6.5 cents, which was recently raised to 9 cents subsequent to an agreement with industry that there would be no gas shedding; however, industry has gone to court against the rise in tariffs after the Cabinet Committee on Energy decided to shed gas.
These subsidies account for the rise in the circular debt to Rs 800 billion in the gas sector.
RLNG is priced at Rs 2200 per mmbtu and is supplied to all new households/commercial/industry connections and industry.
The wide discrepancy in price between domestic gas and RLNG prompted former Petroleum minister Dr Asim Hussain to propose price equalization referred to as the weighted average cost of gas (WACOG) or the average of the much more expensive imported RLNG as well as the cheaper domestic gas. That plan remains unimplemented and is pending approval from the Council of Common Interests (CCoI).
Three major gas producing provinces – Sindh, Khyber Pakhtunkhwa (KP) and Balochistan – have consistently refused to bear the financial burden of expensive LNG by introducing WACOG as Article 158 of the Constitution clearly states that the province in which a wellhead of natural gas is situated, shall have precedence over other parts of Pakistan in meeting the requirements from the well-head, subject to the commitments and obligations as on the commencing day.
Total estimated demand in winter 2021 is 5.5 bcf to 6 bcf while local production is around 4.3 bcf with RLNG imports required to make up the shortfall. In 2021 the Energy Ministry failed to import the RLNG required to make up the shortfall – the third year running which accounts for ongoing gas shedding citing (i) delay in construction of proposed pipelines due to technical and financial constraints; (ii) terminal construction delays attributed to delay in granting formal approval; and (iii) strengthening onshore storage capacity and NAB involvement. In July, 2021, former Secretary Petroleum Division, Arshad Mahmood while testifying before the Senate Standing Committee on Petroleum, said NAB had dispossessed the government officials of the initiative to take decisions and the division was pitching the proposal that commercial matters be examined by some commercial forum but not NAB.
The Auditor General Pakistan, in his report year 2019-20 stated that Rs 10 billion loss in 2020 winter was due to delay in purchasing spot LNG cargos. Energy experts told this correspondent that an estimated Rs 35 billion loss was inflicted in year 2021 for delays in import of RLNG.
The private sector has yet to allocate the idle capacity of the LNG terminal. Last winter, Pakistan LNG Terminals Limited (PLTL) had floated a tender to pave the way for the private sector to utilize the idle capacity on a three-month rolling basis. The government is utilizing idle capacity up to 200 mmcfd in winter.
The oil and gas regulator reserved its decisions on SSGCL’s plea regarding a price hike by Rs 58.42/MMBTU and increased the prescribed gas price by Rs 269 per mmbtu for SNGPL under review of the estimated revenue requirements of the gas companies for 2021-22.
Muhammad Hammad Azhar has resumed the charge as Energy Minister after Special Assistant to the Prime Minister (SAPM) on Power and Petroleum Tabish Gauhar resigned in September 2021. Two federal secretaries of Petroleum Division, Mian Asad Hayaud Din and Dr Arshad Mahmood were also removed over gas crisis during the year.
Copyright Business Recorder, 2021
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