Engro mulling LNG business on commercial basis

M/s Engro is considering entering into Liquefied Natural Gas (LNG) business on commercial basis aimed at supplying imported gas to the private sector. This was the crux of a press briefing given by Chief Executive Officer (CEO), Engro Elengy Terminal Private Limited (ETPL), Sheikh Imran ul Haq on the project site at Port Qasim. Engro''s $145 million LNG terminal is expected to be commissioned by January 26, 2015 instead of March 2015 - a timeframe agreed with the government.
The LNG terminal is the first project in Pakistan which will achieve financial close after completion. "As per LNG policy anybody can import and market the product. Engro is considering it," he added. Replying to a question, Sheikh confirmed that M/s Engro will also bid for the second LNG terminal. When asked if M/s Engro wins the new LNG tender, will it not be a monopoly of Engro; the CEO ETPL said that it will be a new tender, adding that the criteria should be competition of price.
"We offered 66 cents per mmbtu tolling rate for 400 mmcfd LNG and if any body offers 65 cents the tender should be given to them," he continued. He argued that 66 cent rate given by ETPL was the lowest in the region as different agencies were suggesting rate of $1 per mmbtu. He said critical works including the 14.5-metre deep dredging of the channel, erecting pillars for the jetty, construction of pipelines and basic engineering has been completed.
Sheikh Imran ul Haq hired a Floating Storage and Re-gasification Unit (FSRU) - a large ship with onboard liquid-to-gas conversion facility and storage tanks. It will be docked at a new jetty being built at the port. The CEO ETPL further stated that until the project is commissioned, any party can withdraw from the commitment without any liability.
In reply to a question, he said the FSRU can handle an average 600 Million Cubic Feet per day (mmbtu) LNG. However, Government of Pakistan has made a commitment to import 200 mmcfd LNG on its own for the first year and increase it to 400 mmcfd the following year. Answering a question, Sheikh Imran ul Haq said that at least three power sector plants and All Pakistan CNG Association (APCNGA) have shown an interest in import of LNG by using M/s Engro''s LNG terminal.
He, however, said that tolling rate for the private sector will probably be higher than for the government because the quantity the private sector intends to import is less than the government''s commitment. He further stated that as per agreement with the GoP ETPL cannot fix tolling charges less than 66 cents per mmbtu for private sector. According to the LNG policy, ETPL can supply LNG to consumers by laying pipeline but for this the company has to obtain permission from Oil and Gas Regulatory Authority.
Earlier, there were doubts that the government may not be able to import LNG immediately after commissioning of ETPL terminal. But Prime Minister Nawaz Sharif on October 24, 2014 directed concerned ministries to ensure import of LNG by February 2014. The government has already floated a tender to import LNG through Pakistan State Oil (PSO). And as per the contract, ETPL is to ensure 95 percent availability of terminal. Sheikh Imran ul Haq, who is dealing with the privates sector, said if CNG sector succeeds in importing LNG, it will be a fundamental change in Pakistan. "If CNG sector imports two or three LNG vessels and passes it from the pipeline, it will be a big change. It will erode the government''s monopoly in gas sector," he maintained.
According to Sheikh Imran ul Haq, Sui Southern Gas Company (SSGC), which will receive the LNG supplies in its pipeline network, has issued a standby letter of credit to the company and not the letter of credit, covering six months of payment for the tariff. "This is only for six months and still it doesn''t guarantee what will happen after that," said the CEO. "This is still nothing compared to the kind of protection IPPs get." Pakistan produces around 4,000 mmcfd of gas against a demand of over 6,000 mmcfd. The LNG project is expected to add around 10 percent to current supplies.
In reply to another question, he said completion of the project without financial close is a big achievement for Engro. "Engro Corporation is financing the project from subordinate loans and equity. If I had waited for financial institutions funding, my project could not have been completed. Financing should not concern anybody else," he stated. Part of the financing will come from International Finance Corporation (IFC) and Asian Development Bank (ADB).
He contended that Engro''s investment is not protected by any sovereign guarantee, adding that there is only the take-or-pay clause, which means ETPL has to be paid for 200 mmcfd of the terminal''s capacity. Sheikh Imran stated that presently the international price of LNG has come downed to $13-14 mmbtu but he avoided suggesting a price to the government.
Answering another question, he said, the government intends to supply two third or one third LNG to Punjab-based power plants. For this purpose Sawan gas field pipeline is being modified and the laying of new pipeline is also under consideration in the coming four to five years. He maintained that the private sector will pay tolling charges to SSGC or SNGPL in accordance with third party access rule. Draft of the agreement to be signed between the gas companies and private sector intending to use the pipeline is yet to be finalised.