Gas shortage: Crisis not to end anytime soon, says Engro
World’s largest ammonia-urea manufacturing plant fails to operate at optimum level.
KARACHI:
Engro Corporation does not see the gas crisis coming to an end in the near future and has called on the government to prepare a new exploration policy which could encourage extraction of local gas reserves.
Until gas shortages are eliminated, the government should allocate gas to different consumer segments in light of economic returns generated by them, said Engro Corporation President and CEO Asad Umar while responding to The Express Tribune queries. “Give maximum gas to those industries which create the most economic value for the economy,” added Umar.
A new Engro Fertiliser plant, the world’s largest ammonia-urea manufacturing plant with built-in capacity of 1.3 million tons, has been facing shortage of gas supply for more than three months. The plant is currently operating at approximately 80 per cent of capacity.
The government held an international bidding in 2006 for the allocation of 100 million cubic feet per day (mmcfd) of gas for a fertiliser plant, which was awarded to Engro. This was the first time in the country’s history that gas supply was obtained through bids.
“On the basis of this, the company made an investment of $1.05 billion, but the plant is getting only 80 per cent of the total gas allocation,” said Umar.
The gas supply is just above the minimum operating level as the plant cannot run below 70 mmcfd, according to InvestCap.
Engro’s $1.05 billion investment in the new plant is yet to aid the company in paying back the huge amount of debt it took for this expansion. The company’s total debt stands at an alarming Rs90 billion, according to InvestCap.
Local and foreign investors have recently offloaded their positions in the company’s stock, causing a drop of more than 13 per cent in June.
Umar is not alone in advocating better load management, other industrialists and energy experts have also been pressing the government to prefer the productive sectors in gas allocation instead of less productive sectors like CNG outlets.
The fertiliser sector consumes around 15 per cent of the country’s natural gas and is currently facing shortage of around 25 per cent (200 mmcfd) against an average daily demand of 800 mmcfd.
Engro’s new plant receives gas from the Sui network which is facing around 35 per cent shortage. “We recognise that there is an overall gas shortage in the country, therefore, we have done our utmost to cooperate with the government to ensure balancing the needs of various sectors,” said Umar.
However, running the fertiliser plant at a reduced load results in loss of efficiency and reduces the advantages of economies of scale.
On the question of more gas allocation to the fertiliser sector, Umar said that the corporation has been cooperating with the government to enable a rational gas load management plan which will allow high economic value activities like fertiliser production to continue with the minimum amount of limitation.
On the other hand, urea manufacturers have increased prices to avoid losses, citing low gas supply or its non-availability as the reason for the hike.
The country’s gas distribution network is shared by three companies – Sui Northern Gas Pipelines (SNGPL), Sui Southern Gas Company (SSGC) and Mari Gas with market share of 46 per cent, 29 per cent and 15 per cent, respectively. In addition, there are few exploration and production companies which directly supply gas to the power sector with a market share of 10 per cent.
Published in The Express Tribune, June 21st, 2011.
Engro Corporation does not see the gas crisis coming to an end in the near future and has called on the government to prepare a new exploration policy which could encourage extraction of local gas reserves.
Until gas shortages are eliminated, the government should allocate gas to different consumer segments in light of economic returns generated by them, said Engro Corporation President and CEO Asad Umar while responding to The Express Tribune queries. “Give maximum gas to those industries which create the most economic value for the economy,” added Umar.
A new Engro Fertiliser plant, the world’s largest ammonia-urea manufacturing plant with built-in capacity of 1.3 million tons, has been facing shortage of gas supply for more than three months. The plant is currently operating at approximately 80 per cent of capacity.
The government held an international bidding in 2006 for the allocation of 100 million cubic feet per day (mmcfd) of gas for a fertiliser plant, which was awarded to Engro. This was the first time in the country’s history that gas supply was obtained through bids.
“On the basis of this, the company made an investment of $1.05 billion, but the plant is getting only 80 per cent of the total gas allocation,” said Umar.
The gas supply is just above the minimum operating level as the plant cannot run below 70 mmcfd, according to InvestCap.
Engro’s $1.05 billion investment in the new plant is yet to aid the company in paying back the huge amount of debt it took for this expansion. The company’s total debt stands at an alarming Rs90 billion, according to InvestCap.
Local and foreign investors have recently offloaded their positions in the company’s stock, causing a drop of more than 13 per cent in June.
Umar is not alone in advocating better load management, other industrialists and energy experts have also been pressing the government to prefer the productive sectors in gas allocation instead of less productive sectors like CNG outlets.
The fertiliser sector consumes around 15 per cent of the country’s natural gas and is currently facing shortage of around 25 per cent (200 mmcfd) against an average daily demand of 800 mmcfd.
Engro’s new plant receives gas from the Sui network which is facing around 35 per cent shortage. “We recognise that there is an overall gas shortage in the country, therefore, we have done our utmost to cooperate with the government to ensure balancing the needs of various sectors,” said Umar.
However, running the fertiliser plant at a reduced load results in loss of efficiency and reduces the advantages of economies of scale.
On the question of more gas allocation to the fertiliser sector, Umar said that the corporation has been cooperating with the government to enable a rational gas load management plan which will allow high economic value activities like fertiliser production to continue with the minimum amount of limitation.
On the other hand, urea manufacturers have increased prices to avoid losses, citing low gas supply or its non-availability as the reason for the hike.
The country’s gas distribution network is shared by three companies – Sui Northern Gas Pipelines (SNGPL), Sui Southern Gas Company (SSGC) and Mari Gas with market share of 46 per cent, 29 per cent and 15 per cent, respectively. In addition, there are few exploration and production companies which directly supply gas to the power sector with a market share of 10 per cent.
Published in The Express Tribune, June 21st, 2011.