The Economic Coordination Committee (ECC) of the Cabinet has set stringent conditions for LNG terminals to allocate additional capacity of Re-gasified Liquefied Natural Gas (RLNG) to third parties on commercial basis, sources close to Prime Minister's Special Assistant on Energy told Business Recorder. The Cabinet, which is rescheduled to meet on Wednesday (today), will further discuss the pros and cons of the ECC decision and probably endorse it. Secretary Power Division's objections were overruled by the ECC in its meeting on July 31, 2019, presided over by Prime Minister's Advisor on Finance, Dr Abdul Hafeez Shaikh.
According to the Petroleum Division's summary, at present, two LNG re-gasification terminals are operational in the country. For terminal-1, Engro Elengy Terminal Private Limited (ESTPL) is the operator whereas SSGCL is the customer. For terminal-2, Pakistan Gas Port Consortium Limited (PGPCL) is the operator whereas Pakistan LNG -Terminal Limited (PLTL) is the customer. PSO is importing six LNG cargoes per month (nearly 600 MMCFD) on term contract basis. This includes five cargoes from Qatar LNG imported by PSO in re-gasified at terminal-1. At terminal-2 Pakistan LNG Limited (PLL) is importing two LNG cargoes per month (nearly 200 MMCFD) on term contract basis whereas additional LNG imports are made through spot tenders to meet gas requirements of the country.
On February 12, 2019, Prime Minister directed to explore the possibility of contracting additional 200 MMCFD of LNG at reduced rates to meet the projected supply-demand gap. In addition, the CCoE on February 13, 2019 decided to make necessary arrangements for the import of additional supplies of RLNG to meet the energy requirements of the country.
Pursuant to the direction of the Prime Minister and CCoE, a summary was submitted to the ECC on March 25, 2019 with the following proposals: (i) direct SSGCL and PLTL to assess and acquire additional available re-gasification capacity of their respective terminals beyond the existing daily average of 600 MMCFD; (ii) nominate PLL as a government entity for import of additional LNG volumes matching the actual available additional re-gasification capacity of existing terminals; (iii) grant exemption from the requirement of competitive bidding process by invoking Rule 5 of PPRA Rules, 2004 for PLL; and (iv) authorise the existing Price Negotiation Committee (PNC) already constituted by the ECC to negotiate LNG pricing with Qatargas.
The ECC on March 27, 2019 on the issue of assessing the demand and procurement of additional available re-gasification capacity of the LNG terminal, directed Petroleum Division to revisit the future RLNG demand, in view of shortage of gas in the country and contractual agreements with LNG terminal operators, in a holistic manner and resubmit the proposal to the ECC.
Total physical capacity of terminal-1 and terminal-2 is 690 MMCFD and 750 MMCFD respectively. For terminal-1, SSGCL has a contractual re-gasification capacity of 630 MMCFD with a peak capacity of 690 MW on best effort basis as and when required. For terminal-2, PLTL has a contractual capacity of 600 MMCFD with peak capacity of 690 MMCFD on reasonable endeavor basis, as and when required.
The possibility of procurement of available re-gasification capacity at the respective terminals, in addition to existing contracted capacity was examined in consultation with the SSGCL and PLTL. SSGCL has reported that practically there is no additional capacity available to acquire at terminal-1. PLTL has reported that an estimated additional 100 MMCFD can be added to existing contracted capacity at 96 per cent availability factor (nearly 0.75 MPTA), keeping in view the operational constraints. However, PLTL has also reported that the private sector has also shown keen interest in utilizing additional terminal capacity under third party access mechanism.
To further deliberate the availability and utilization and additional re-gasification capacity beyond 600 MMCFD contracted by PLTL at terminal-2 (operated by PGPCL), a meeting was held under the chairmanship of Secretary Petroleum on May 6, 2019 which was attended by Chairman PGPCL, acting Managing Director, PLTL and others. Chairman PGPCL explained that as such there is no clause in the Operations and Services Agreement (OSA) between PGPCL and PLTL that binds PGPCL to allocate additional capacity to PLTL.
Acting MD PLTL argued that as such there is no clause to bind PGPCL to allocate terminal capacity to PLTL. Chairman PGPCL stated that they are already in negotiations with third party ie. M/s Trafigura and want to allocate additional terminal capacity to them. It was decided that since there is no binding clause in the OSA then it is PGPCL's prerogative to allocate spare capacity to any party in their own best commercial interest. PGPCL ensured smooth operations of PLTL as per the terms of OSA in the event spare capacity is allocated.
According to SSGCL, there is no additional capacity available at terminal -1 to acquire. On the other hand, operator (PGPCL) of terminal-2 wants to allocate available excess capacity of terminal-2 to third party, ie, M/s Trafigura instead of PLTL, in the absence of any binding provision in the OSA between PLTL and PGPCL. Therefore, there is no additional/excess re-gasification terminals capacity, available to be acquired by GoP entities. Also in view of the ongoing NAB inquiry in the LNG sector, which is at an advanced/investigation stage, it may be appropriate that terminal operator(s) allocate additional re-gasification capacity of terminal if any, to third party (ies) on a commercial basis as the provisions of their services agreements.
During ensuing discussion, it was pointed out that while allowing utilization of excess capacity of terminal(s) by private party(ies), interest of Government of Pakistan may be safeguarded including priority for cargo handling, berthing storage, re-gasification and pipeline capacity as per existing contractual agreements.
Secretary Power, Irfan Ali raised concern over likely use of storage capacity of Floating Storage and Re-gasification Unit (FRSU) by private party(ies) which is otherwise contracted by PLTL. It was responded that terminal-2 has some excess storage capacity over and above contracted by PLTL whereas additional storage can be developed for enhancing flexibility of LNG supply chain and to cater for swings in gas demand.
After detailed discussion, the ECC allowed the existing RLNG terminal operators to allocate additional re-gasification of terminal to third party on commercial basis as per the provisions of services agreements subject to following conditions: (i) GoP cargoes will always have priority on berthing, storage and re-gasification vis-à-vis private cargoes at terminal-1 and termonal-2; (ii) if GoP is not fully utilizing its contracted capacity of 600 MMCFD of LNG at any time, any sale to the private party will first be treated as sale of GoP capacity to reduce GoP "take or pay" up to the 600 MMCFD, ie, terminal cannot resale same capacity twice;(iii) any customer that chooses to buy from private importers will have to give undertaking to SNGPL/SSGCL that it will give its entitlement to take supplies from them; (iv) if the terminal brings a bigger FSRU, it cannot disrupt service to GoP, and there will be no new tax concessions for this; and (v) giving approval of additional capacity does not bind GoP to give pipeline capacity which follows its own legal process.
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