PD prepares $496m gas pipeline augmentation plan

ISLAMABAD: Petroleum Division has prepared augmentation plan of existing gas pipeline for transportation of gas from South to North with an investment outlay of over $496 million, to be met out of the collections of Gas Development Infrastructure Cess (GDIC), in addition to allowing expansion in existing terminals sans government guarantee, sources close to Chairman Oil and Gas Regulatory Authority (Ogra) told Business Recorder.

M/s SNGPL and M/s SSGCL are two public sector gas utility companies engaged in the transmission and distribution/ sale of natural gas in the country under license from Ogra. SSGCL have a consumer base of 3.5 million with transmission and distribution network extended up to 53,900 kilometres, whereas SNGPL has a consumer base of 7.5 million with transmission and distribution network extended up to 157,000-KM.

Most of the consumption centres in terms of gas are located in the north on SNGPL network which faces depletion of natural gas supplies. The gas depletion during the last eight years is as follows: SSGCL, 2014-15, 1,190mmcfd; 2015-16, 1,283 mmcfd; 2016-17, 1,201 mmcfd; 2017-18, 1198 mmcfd; 2018-19, 1,164 mmcfd; 2019-20, 1087 mmcfd; 2010-21, 1,060 mmcfd and 2021-22; 875 mmcfd.

SNGPL: 2014-15, 1,442 mmcfd; 2015-16, 1,404 mmcfd; 2016-17, 1,373 mmcfd; 2017-18, 1,262 mmcfd; 2018-19, 1,39 mmcfd; 2019-20, 1,050 mmcfd; 2020-21, 930 mmcfd and 2021-22, 770 mmcfd.

SNGPL is facing rapid depletion of indigenous gas projected up to 19% per annum whereas SSGCL faces a depletion of 5% per annum. In order to meet the growing gas demand coupled with depletion of natural gas, Government established two LNG terminals in year 2015-16 & 2016-17 at Port Qasim and also contracted 1200-mmcfd capacity. LNG supply contracts with Qatar Gas were executed, as well as, with M/s Gunvor and M/s Eni with cumulative import of eight LNG cargoes.

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Against these contracts, the contracts for supply of two LNG cargoes with Gunvor expired in year 2020 and 2022, respectively. Later, in 2020 another contract with Qatar Energy was executed for import of 4 LNG cargoes starting one cargo per month in year 2021 followed by addition of one cargo per month in each subsequent year until year 2024.

In order to transport imported gas from Port Qasim to SNGPL network, a dedicated pipeline was laid which was commissioned in September, 2018. For the period March 2015 to September 2016, imported LNG was being consumed in SSGC network and equivalent energy units through supply of indigenous gas swapped/ provided to SNGPL.

The dedicated pipeline network was laid in two phases at a cost of Rs. 126 billion. The gas utility companies borrowed funds of Rs. 32 billion on their balance sheet whereas Government in FY 2015-16 arranged sovereign guarantee for commercial borrowing of Rs. 94 billion in favour of SSGCL and SNGPL. The loan repayment is to be completed by year 2026.

According to sources, although Government has long been pursuing trans-national pipeline projects for import of gas in the country, i.e., Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project, Iran- Pakistan-India pipeline project; however, considering the geopolitics no tangible progress could be made on both of these projects while on the other hand the smaller indigenous gas discoveries have been unable to arrest the natural depletion of gas in the country.

Under these circumstances, the fast track option available for meeting the growing gas demand is import of LNG either through public sector using their own network or through private sector companies under third party access regime.

The sources said, pursuant to the Federal Cabinet’s decision of July, 2019 regarding establishment of LNG Terminals on BOT basis at Port Qasim (PQ) Karachi, provisional Letter of Intent (LoI) along with project guidelines were issued to five private sector companies by PQA.

In response, two firms namely M/s Tabeer Energy (PVT.) Ltd and M/s Energas (Pvt.) Ltd submitted acceptance of provisional LoI and project guidelines along with partial concession fee of $2 million (non-refundable) each with the condition that both will pay the remaining fee of $ 8 million (non-refundable) upon execution of Implementation Agreement (IA) with PQA.

Subsequently, based on the recommendations of the consultant, PQA in May, 2020 issued final Letter of Intent (LoI) along with draft IA to both the private firms; however, both the firms have been seeking extension in acceptance date of final LoI citing issues in respect of site NOCs/clearance, and pipeline capacity allocation. Both LNG Terminal developers initially sought pipeline capacity of 250 to 300 mmcfd each in the existing network of Sui companies to take Final Investment Decision (FID) and to proceed with execution of IA followed by construction of respective LNG terminal.

However, given the limited capacity available in the pipeline due to present executed contracts, both new LNG terminal developers could not be provided the required pipeline capacities and formalities related to execution of capacity allocation agreement and access arrangement agreements remained pending. In respect of pipeline capacity, Section 6.4 of the ECC approved LNG Policy 2011 is as follows:

Gas Transmission: Ogra will ensure that subject to capacity being available, the LNG Developer or LNG Seller or RLNG Buyer, as the case may be, will have access to the SSGCL and SNGPL pipeline network or any other new entity at a transportation tariff to be determined under Third Party Access (TPA) Rules even after privatisation of these, two entities. If SSGCL/ SNGPL do not have available capacity, the LNG Developer or LNG Buyer or RLNG Buyer, as the case may be, can request SSGCL/ SNGPL or any other operator of pipeline to expand capacity based on technical and economic considerations or may construct its own pipeline subject to grant of licence by Ogra. In determining available capacity, Ogra would consider the capacity that could be made available by swapping gas between SSGC and SGPL systems.

The sources further stated that in addition to facilitating the establishment of new LNG terminals, the government is also considering the option of capacity expansion of existing LNG terminals without involving any government guarantee against additional capacity or any off-take commitment. Both the stated options have been envisaged to meet the growing demand of gas in the country which is hovering at 5000 mmcfd against total supplies of 4000 mmcfd including import of LNG. In order to augment the existing capacity of transportation of gases from south to north, both Sui companies have jointly developed a project which can increase the existing transportation capacity of 1200 mmcfd will increase to 1900 mmcfd, i.e., 500 mmcfd through new pipeline and 200 mmcfd (swap) through modification in existing network.

The estimated outlay of project will be $496.44 million. SSGCL is to complete its proposed project in 24-30 months whereas SNGPL is to complete its proposed project in 18-24 months.

Foregoing in view, Petroleum Division has submitted following proposals for consideration of the ECC: (i) The proposed project of pipeline augmentation along with estimated capital outlay may be approved; and (ii) the proposed project funding requirement of $ 496.44 million may be met out of the collections of Gas Development Infrastructure Cess (GDIC) and funds may be allocated for the CFY 2023 (Jan-June), FY 2023-24 and FY 2024-25 based on the requirements of the Sui companies. This will also ensure compliance with the Supreme Court’s directions of spending against infrastructure projects out of collections of GIDC.

Copyright Business Recorder, 2022