PTI govt likely to shelve tender for LNG purchase
Power producers refuse to lift imported gas due to economic merit order
SNGPL wants the Power Division to operate LNG-based power plants on a “must-run basis” in order to consume the imported gas. PHOTO: FILE
ISLAMABAD:
Pakistan may shelve a tender for spot purchase of 10 liquefied natural gas (LNG) cargoes at cheaper rates as a complex situation has emerged following refusal by power producers to lift the imported gas for electricity generation due to the economic merit order.
Following a dip in global LNG prices, Pakistan LNG Limited (PLL) had invited bids for supply of 10 LNG cargoes on spot basis. Spot prices had dipped in the international market in recent months, therefore, the government was hoping to secure LNG cargoes at cheaper rates.
The complex situation arose due to the absence of a firm gas supply agreement between different stakeholders like LNG importers, gas utilities and power producers.
Pakistan has a firm LNG import agreement with Qatar and Sui Northern Gas Pipelines Limited (SNGPL) wants LNG-based power plants to run smoothly in order to fully consume the available imported gas.
However, the Power Division has refused to allow these plants to operate because of the economic merit order. The Power Division secretary has told a sub-committee of the Public Accounts Committee (PAC) that they will operate LNG-fired plants only if the economic merit permits.
However, SNGPL wants the Power Division to operate the power plants on a "must-run basis" in order to consume the imported gas. Owing to this situation, three natural gas fields in the country had been shut down to ensure a smooth flow of imported gas and avoid payment of damages.
"Now, if the LNG-based power plants are not run due to the economic merit order, the consumers would have to pay billions of rupees in capacity charges," an official cautioned, adding that the capacity charges would be paid to the LNG terminal operators.
Last year, SNGPL had asked PLL to cancel a cargo but after one week it again approached PLL for LNG import.
"The government must push ahead with the tender and by the end of September it should decide whether to order or not," the official suggested.
The Power Division has revised its re-gasified LNG requirement for September to December 2019. "In this context, we wish to inform that based on the revised firm RLNG requirements of the Power Division, we are proceeding with cancellation of LNG cargoes and revision in LNG orders for the period September to December 2019," SNGPL said in a letter written to the Power Division on August 28.
SNGPL authorities also warned that once the LNG order and cargoes were cancelled, then the gas utility would not be able to order any additional LNG volumes again due to the constraint of minimum LNG procurement time period of 90 to 120 days.
"It may please be noted that any RLNG over and above the revised requirements, if required by the Power Division at a later stage, shall only be on 'as and when' available basis and any risks associated with any further revised RLNG requirements shall be solely at the risk and cost of the Power Division," SNGPL said in the letter.
At present, Qatar is exporting 500 million cubic feet of LNG per day (mmcfd) to Pakistan. Commodity trading firm Gunvor and Italy's energy giant Eni are exporting 200 mmcfd and 100 mmcfd on a contract basis.
The current government has recently allowed the private sector to import LNG at its own risk. Industries like compressed natural gas (CNG) stations, fertiliser plants and power companies also want to import LNG.
"This is the best way for the government to come out of the LNG business in order to reduce risks," the official remarked.
Published in The Express Tribune, August 30th, 2019.
Pakistan may shelve a tender for spot purchase of 10 liquefied natural gas (LNG) cargoes at cheaper rates as a complex situation has emerged following refusal by power producers to lift the imported gas for electricity generation due to the economic merit order.
Following a dip in global LNG prices, Pakistan LNG Limited (PLL) had invited bids for supply of 10 LNG cargoes on spot basis. Spot prices had dipped in the international market in recent months, therefore, the government was hoping to secure LNG cargoes at cheaper rates.
The complex situation arose due to the absence of a firm gas supply agreement between different stakeholders like LNG importers, gas utilities and power producers.
Pakistan has a firm LNG import agreement with Qatar and Sui Northern Gas Pipelines Limited (SNGPL) wants LNG-based power plants to run smoothly in order to fully consume the available imported gas.
However, the Power Division has refused to allow these plants to operate because of the economic merit order. The Power Division secretary has told a sub-committee of the Public Accounts Committee (PAC) that they will operate LNG-fired plants only if the economic merit permits.
However, SNGPL wants the Power Division to operate the power plants on a "must-run basis" in order to consume the imported gas. Owing to this situation, three natural gas fields in the country had been shut down to ensure a smooth flow of imported gas and avoid payment of damages.
"Now, if the LNG-based power plants are not run due to the economic merit order, the consumers would have to pay billions of rupees in capacity charges," an official cautioned, adding that the capacity charges would be paid to the LNG terminal operators.
Last year, SNGPL had asked PLL to cancel a cargo but after one week it again approached PLL for LNG import.
"The government must push ahead with the tender and by the end of September it should decide whether to order or not," the official suggested.
The Power Division has revised its re-gasified LNG requirement for September to December 2019. "In this context, we wish to inform that based on the revised firm RLNG requirements of the Power Division, we are proceeding with cancellation of LNG cargoes and revision in LNG orders for the period September to December 2019," SNGPL said in a letter written to the Power Division on August 28.
SNGPL authorities also warned that once the LNG order and cargoes were cancelled, then the gas utility would not be able to order any additional LNG volumes again due to the constraint of minimum LNG procurement time period of 90 to 120 days.
"It may please be noted that any RLNG over and above the revised requirements, if required by the Power Division at a later stage, shall only be on 'as and when' available basis and any risks associated with any further revised RLNG requirements shall be solely at the risk and cost of the Power Division," SNGPL said in the letter.
At present, Qatar is exporting 500 million cubic feet of LNG per day (mmcfd) to Pakistan. Commodity trading firm Gunvor and Italy's energy giant Eni are exporting 200 mmcfd and 100 mmcfd on a contract basis.
The current government has recently allowed the private sector to import LNG at its own risk. Industries like compressed natural gas (CNG) stations, fertiliser plants and power companies also want to import LNG.
"This is the best way for the government to come out of the LNG business in order to reduce risks," the official remarked.
Published in The Express Tribune, August 30th, 2019.