LNG supply disruption feared

PSO facing shortfall of billions of rupees in winter gas purchases

ISLAMABAD:

Pakistan State Oil (PSO) is being haunted by the spectre of disruption to the liquefied natural gas (LNG) supply chain because of a liquidity crunch as it will require Rs548 billion for gas import in March 2023.

In November, state-owned oil marketing giant PSO faced a financing shortfall of Rs70 billion and it is feared that it will continue to swell in the coming months.

Liquidity shortfall has been projected at Rs118 billion for December 2022, Rs162 billion for January 2023, Rs226 billion for February and Rs263 billion for March.

It is blamed on delay in the payment of outstanding dues by Sui Northern Gas Pipelines Limited (SNGPL), which itself has to receive billions of rupees from the residential consumers owed since previous winter seasons.

SNGPL immediately requires a financing of Rs120 billion for onward payment to the oil marketing firm. PSO, along with Pakistan LNG Limited (PLL), is engaged in LNG import to bridge the demand-supply gap in the country.

Re-gasified LNG (RLNG) is predominantly supplied to the SNGPL consumers while a small volume is injected into the Sui Southern Gas Company (SSGC) network.

Among the SNGPL consumers, the major one is power plants that on average consume up to 70% of RLNG whereas the remaining is supplied to the exporting and non-exporting industries, fertiliser plants, commercial consumers, compressed natural gas (CNG) stations, cement plants and domestic consumers.

On the SSGC network, RLNG is supplied to K-Electric, the exporting and non-exporting industries and CNG filling stations.

During the period from November 2022 to February 2023, PSO is importing a maximum quantity of LNG in terms of the number of cargoes under long-term contracts with Qatar Energy.

At current prices, the delivered cost of each cargo is calculated at $45 million for October 2022, therefore the cumulative financial impact of 10 cargoes will be around $450 million each month.

The RLNG tariff, notified by the Oil and Gas Regulatory Authority (Ogra) for October 2022, was $13.7080 per million British thermal units (mmbtu) for the transmission network and $14.7850 per mmbtu for the distribution network.

PSO is importing eight to nine LNG cargoes per month and according to the contracts struck with LNG suppliers, it must clear the invoice on 15th day after the completion of cargo unloading and 10th banking day after the receipt of invoice from the supplier, whichever is later.

PSO has furnished its net liquidity requirement on a month-on-month basis for the period November 2022 to March 2023. Up to 92% of PSO’s LNG imports are sold to the SNGPL network and only 8% is supplied to the SSGC system.

SNGPL will likely face trouble in the recovery of full RLNG cost from the domestic consumers, who are sold gas at an average price of Rs450 per mmbtu.

In addition to this, RLNG is provided to two fertiliser plants, namely Agritech and Fatima Fertiliser, at a concessionary rate of Rs839 per mmbtu. This is resulting in subsidy accumulation as the budgeted subsidy of Rs15 billion is only sufficient to meet claims up to August 2022 whereas subsidy claims are due till November 2022.