No agreement yet on new floating terminal

CCOE fails to reach consensus as SNGPL fears disruption to gas supply

Zafar Bhutta June 19, 2021


The Cabinet Committee on Energy (CCOE) again failed on Friday to achieve consensus on allowing Engro's LNG terminal to replace its existing Floating Storage and Regasification Unit (FSRU) with a new one as different stakeholders expressed their reservations about the move.

Sui Northern Gas Pipelines Limited (SNGPL) voiced concern over possible disruption in gas supply to power plants. The gas utility would have to pay damages if it could not provide gas to the power plants which have "take-or-pay" agreements. The utility wants Sui Southern Gas Company (SSGC) and Engro Elengy Terminal Pakistan Limited (EETPL) to bear the burden of damages, if they arise.

Read: CCOE fails to agree on regasification unit

According to officials, SNGPL warned of a gas crisis, believing that only 400 million cubic feet per day (mmcfd) of LNG would be available if the FSRU went on dry-docking.

Under the dry-docking process, water is drained to dry the regasification unit.

Apart from that, an official in the CCOE meeting pointed out that there was no provision in the LNG Services Agreement (LSA) between SSGC and EETPL for replacing the FSRU.

The agreement covers handling of 400 mmcfd of LNG imports, which has been later increased by an additional 200 mmcfd. A US firm has provided the FSRU to Engro and now it wants to replace the existing floating terminal with a new one having additional regasification capacity.

According to sources, the US has even taken up the matter with high-ups of Pakistan government through diplomatic channels.

However, SSGC opposed the replacement of terminal on fears of potential investigation by the National Accountability Bureau (NAB).

During the CCOE meeting on Friday, the participants held discussions on whether the LSA allowed the replacement of FSRU. However, the committee could not reach a consensus and decided to refer the matter to the Law Division for legal advice.

It would take up the matter again after receiving the legal advice, said officials. In a series of meetings, Maritime Affairs Minister Ali Zaidi objected to the plan of FSRU replacement, saying it was the peak summer season and was not the right time for dry-docking.

Owing to the proposed dry-docking, only 400 mmcfd of LNG will be available for consumption by the general industry and fertiliser plants. Power producers and compressed natural gas (CNG) filling stations will, however, face LNG shortage.

SNGPL also warned that dry-docking at a time of high gas demand from power plants, coupled with the annual turnaround (ATA) of gas fields, would result in a significant gas shortfall.

Read more: LNG plants to be free of merit order

The gas utility pointed out that it had already locked the annual delivery plan for 2021 with the power plants and Power Division. "Any disruption to gas supply will lead to demand for capacity payments and liquidity damages from the Power Division," it said.

SNGPL underlined the need for revising downward the annual development plans of gas-based power plants to avoid capacity payments under the Gas Sale Agreements (GSAs). If the development plans were not revised, then SSGC and EETPL should bear the burden of capacity payments and liquidity damages, SNGPL suggested.

On its part, SSGC called for seeking consent of Qatargas and SNGPL before any dry-docking activity. It emphasised the need for framing effective plans and strategies to mitigate the risks associated with the upstream and downstream supply obligations.