SNGPL unable to ink LNG purchase deal as demand falls

Power producers reluctant to give firm LNG supply orders because they consume oil

ISLAMABAD: Sui Northern Gas Pipelines Limited (SNGPL) has been unable to ink an agreement with Pakistan LNG Limited (PLL) for the purchase of imported liquefied natural gas (LNG) as power producers are reluctant to give firm gas supply orders because they are mainly running on imported furnace oil.

The reduction in gas demand from the power producers has led to increase in re-gasification rates at LNG terminals as consumers have to pay full capacity cost of the infrastructure as well as rise in transmission cost.

The high gas cost has put an additional burden of millions of dollars on end-consumers of imported gas. LNG is a cheaper fuel which produces electricity at Rs9 per unit against the cost of Rs12 per unit for furnace oil-based electricity.

Heavy furnace oil imports also caused the recent gas crisis after domestic oil refineries pushed down their production levels and reduced the receipt of crude oil from oil and gas fields which forced gas producers to cut output.

In this situation, the oil mafia has forced the government to use furnace oil in power plants instead of cheaper LNG, which is a violation of the merit order.

Sources told The Express Tribune that SNGPL had informed the government that it would not be able to enter into an agreement with PLL for LNG purchase on ‘take or pay’ basis as power producers had not given firm orders.

It revealed that the power producers wanted to ink agreement on ‘as and when required’ basis. SNGPL was of the view that the power sector must give a firm order for LNG supply and an agreement should be signed among power producers, SNGPL, PLL and the LNG supplier to avoid any undesirable situation in future.



Sources said average LNG demand from the power sector in November 2018 was estimated at 820 million cubic feet per day (mmcfd) against allocation of 803 mmcfd. However, average consumption was just 287 mmcfd, which was quite low compared to the allocation.

State-run Pakistan State Oil (PSO) has entered into two contacts for LNG supply with Qatargas and Gunvor for 15 years and five years respectively.

Qatargas is supplying five LNG cargoes per month carrying around 500 mmcfd whereas Gunvor is supplying one cargo per month containing 100 mmcfd. These LNG supplies are handled at the first LNG terminal at Port Qasim.

PLL has also signed two contracts for LNG supply with Eni and Gunvor, which supply one cargo each per month, for 15 years and five years respectively. These LNG supplies are handled at the second LNG terminal, which is also at the Port Qasim. Officials pointed out that LNG was being mainly imported for power producers but lower demand from them had caused different problems for the entire energy chain. It has also resulted in delay in offloading LNG cargoes at the terminals.



When approached for comments, a spokesperson for the Petroleum Division acknowledged that the power sector had not given any firm demand for LNG supply and therefore SNGPL and PLL could not ink any agreement.

“The power sector needs to give firm orders for gas supply on ‘take and pay’ basis and then the agreement could be signed among SNGPL, PLL and power producers,” he said. 

Published in The Express Tribune, December 26^th, 2018.

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