Yet another LNG terminal and pipeline

The Economic Co-ordination Committee (ECC) early this month approved the construction of 42-inch diameter 700km Gwadar-Nawabshah pipeline to transport liquefied natural gas (LNG). The approval also includes the set-up of LNG terminal and two compression stations. The terminal will have the capacity to manage up to 500 million cubic feet per day (mmcfd) of gas.
This project appears to be of significant value as it invokes the much desired development in Gwadar where the commercial activities are nearly on hold since the last over seven years after the government having substantially invested in Gwadar infrastructure development inclusive of state-of-the-art establishment of Gwadar port.
The second significance is that, subsequently, this pipeline is understood to also facilitate Iran-Pakistan gas pipeline project by its hook-up and extension till the Pak-Iran border with only 70km of additional pipe line lay.
Iran-Pakistan gas pipeline project (IP) has a turbulent history with many ups and downs with significant impact on the diplomatic relations between the two countries. As per the agreement both countries were to complete their part of the pipeline by December 31, 2014 and in default a considerable amount of penalty is applicable. Whereas, Iran is understood to have completed its part of pipeline, Pakistan has not even started as it is not in a position to challenge the international sanctions in vogue against IP.
Interstate Gas Systems (pvt) Limited (ISGS) is being delegated the responsibility to manage this 700km pipeline project of national importance. Different business and project funding models are believed to be under the consideration of the government inclusive of govt. to govt. bilateral funding, build, operate and transfer (BOT) and build, own and operate (BOO). Japan, Russia and China are reported to have shown interest to participate in the project. The Government is reported to have directed ISGS to complete the tendering and agreement signing process within two months and the pipeline be ready by November 2015.
All of the said government ambition levels seem to be in good order but there are some ground realities, which need to be well recognised as they are often missed or ignored by the government to take into account in its planning and decision making phase. To start with the timeframe of November 2015 for the completion of the 700km pipeline as envisaged by the government is unrealistic. Realistically it has the potential to be completed by 2018 if professionally managed.
As a reference in Pakistan one must note that White Oil Pipe Line ( WOPL) installed in early 2000 to transport imported oil from Port Qasim to Pak- Arab Refinery (PARCO) at Multan, covering a distance of 860km, was completed in over three years from inception at a cost then of US $580 million. It is a 20-inch diameter line. This time frame was achieved on account of a very professional project management and ready availability of funds. The project was executed on turnkey basis by China Petroleum Energy Corporation.
Whereas, ISGS in its present shape, lacks competence and experience to manage the LNG terminal and pipeline project. The organisation needs to be strengthened. One also needs to have a closer look at the supply and demand dynamics of import of LNG into Pakistan and the number of infrastructures being developed for receiving and transporting it.
It is estimated that Pakistan is facing a gas deficit of over 2 billion cubic feet per day. Government in its policy of 2006 encouraged LNG import into the country. Since then number of LNG import attempts have been made by the public and private sector but only one LNG import and terminal project by Engro Ellengy has kicked off. Number of other investors are considering to enter the LNG supply market. One is Bahria Foundation LNG Import Terminal Project (BFLTP) who has invited expression of interest from the consultants for project consultancy. The project is a floating LNG import terminal located off-shore in the Sonmiani bay near Karachi. The terminal capacity is 500 mmcfd. The completion time is targeted as 24 months from Project financial close and is estimated to cost between 180-350 million US $ depending on the type of the mooring system.
If the said three LNG projects presently on the map go through we may have 1500 mmcfd of LNG available in tandem within a timeframe of 18 to 48 months. All of it is planned to be injected into SSGC and SNGPL network. SSGC and SNGPL gas pipes are over 50 years old and so are most of the gas compression stations. Will this depleting infrastructure be able to sustain the additional load of LNG even in single traffic? Probably not. Both the networks need to be refurbished and upgraded.
One issue is the availability of LNG. The second, equally important, issue is the affordability of LNG. The major consumers of LNG are expected to be power generation plants (IPPs) and fertiliser plants. Replacing oil (RFO & HSD) with LNG is a viable option for Independent Power Producers (IPPs) operating their plants on oil. Whereas, presently, the fertiliser plants are being provided natural gas, which is far cheaper than any other fuel. They are producing fertilisers for agriculture use where the prices are somewhat regulated by the government to support the farmers. LNG is far costlier than natural gas and it will be difficult for the manufacturers to maintain the prevailing price level without substantial government subsidy, which may not be possible as per the agreement made with the IMF. It appears unlikely that the Fertiliser plants would opt for LNG.
Further, the power generation in Pakistan is moving out of RFO and HSD fuel to coal, hydel and renewable energy. Future power plants are not expected to be based on oil or LNG as a substitute to the same. The energy managers therefore need to go back to the planning board and have another look at the required energy mix, supply and demand dynamics, available infrastructure and so on. In the absence of an integrated energy policy this task is difficult but essential failing which the country will suffer in having too much or too little as it has been suffering over the last decade with unavailability and unaffordability of energy primarily on account of messed-up energy-mix and messed-up governance.
(The writer is Chairman Avant Ventures and former President of ABB- Asea Brown Boverie and OICCI)