Gas imports: Pakistan to build offshore LNG terminal

CNG stations to remain closed for two days a week in Punjab beyond March 15.

ISLAMABAD:

Pakistan will set up an off-shore terminal to import 3.5 million tonnes of liquefied natural gas (LNG) per year, even as the government announced an indefinite extension of the two-day suspension of supply to compressed natural gas (CNG) stations.

Both announcements were made by the petroleum ministry. The off-shore LNG terminal marks an end to the controversial onshore LNG gas import project, known as ‘Mashal LNG’, a project that was awarded to a company called 4Gas, but was struck down by the Supreme Court. The government is expected to begin the search for an appropriate site for the off-shore platform within a 22 nautical mile radius off the coast.

“The offshore LNG import project is the quickest and the cheapest option compared to onshore and floating LNG imports projects,” said Faizullah Abbasi, managing director of the Sui Southern Gas Company (SSGC), one of two majority-government-owned gas distribution companies in Pakistan.

Abbasi said the SSGC board of directors has already approved the venture. The company expects the first shipment of gas to be received by the first quarter of 2013, six to eight months before a comparable onshore terminal. The government will
begin soliciting bids for setting up the terminal next week.

Petroleum Secretary Imtiaz Kazi said that the government will continue to enforce the policy of a weekly two-day suspension of gas supplies to CNG stations even beyond March 15, the official end of winter gas rationing. Gas rationing in Punjab would continue beyond June, he said. Total gas consumption at CNG stations across the country is 320 million cubic feet per day (mmcfd)

Unexplained losses

Pakistan is losing 300 mmcfd of gas due to theft and leakages, causing a Rs20 billion loss to the gas companies in unearned revenues alone, admitted Rashid Lone, managing director of Sui Northern Gas Pipelines, the second of the two government-owned gas distribution companies.

Lone said SNGPL’s gas losses have reached 9.6 per cent, which was almost double than the world average. He said a one per cent loss amounted to Rs1.5 billion in lost revenues and 18 mmcfd gas. SSGC’s gas losses have crossed 7 per cent.

Iran-Pakistan pipeline project

Pakistan is on track to complete all the work for ensuring gas flows from the Iran-Pakistan pipeline by its contractually obligated date of December 31, 2014, said Hilal A Raza, managing director of Inter State Gas Systems, the company created to manage the international pipeline project.

A failure to erect the infrastructure will be costly, though. Pakistan is liable to pay Iran $8 million per day for every day the project is delayed after the deadline. The price is equivalent to the cost of the 750 mmcfd that is expected to slow through the pipeline. In other words, Pakistan pays Iran from January 1, 2015, regardless of whether or not the gas is flowing.

Pakistan has had some trouble raising financing for the project after US objections, though Raza insisted that US sanctions on Iran do not apply to the gas pipeline to Pakistan since those only apply to investment into Iran’s domestic production capacity. Pakistan is purchasing gas at its own border. Islamabad is expected to ask for China’s assistance in financing the project.

Gas crisis to intensify

According to petroleum ministry estimates, Pakistan’s domestic gas production is expected to fall from the current 4 billion cubic feet per day (cfd) to 2 billion cfd by 2020. Demand, on the other hand, is expected to soar to 8 billion cfd by that time, creating a 6 billion cfd shortfall.

Kazi said that even if all projects to supply gas to Pakistan were completed on time, there would still be a gas shortfall of 2 billion cfd by 2020.

Under the Iran-Pakistan pipeline agreement, Pakistan will be able to import 750 million cfd from Iran’s gas field. The Turkmenistan-Afghanistan-Pakistan (TAP) pipeline, which is subject to extreme political risk due to the war in Afghanistan, is expected to yield another 1.3 billion cfd. Offshore LNG imports are expected to bring in another 2 billion cfd, still leaving a 2 billion cfd shortage in supply.

Published in The Express Tribune, March 12^th, 2011.