LNG glut puts Rs242b burden on consumers

The failure of the government to manage liquefied natural gas (LNG) imports has put an additional burden of Rs242 billion on consumers during the current financial year.

Sources said that LNG glut had increased with a drastic reduction in offtake by captive power plants (CPPs) due to the imposition of a grid transition levy. Another challenge was the decrease in offtake by the government for power producing plants.

As LNG consumption by CPPs goes down, the estimated revenue requirement for the current financial year, as determined by the Oil and Gas Regulatory Authority (Ogra), shows that the cost of diverting re-gasified LNG (RLNG) to domestic consumers on Sui Northern Gas Pipelines Limited's (SNGPL) network is Rs242 billion based on 24 cargoes, which led to an increase in consumer gas prices effective from July 1, 2025, sources said.

Already, the government has approved a policy to increase the allocation of newly discovered gas to third parties from 10% to 35% in a bid to open the gas market and combat glut.

Owing to the glut, the exploration and production (E&P) companies have been forced to curtail supplies by 250 to 400 million cubic feet per day (mmcfd). The private sector is willing to receive the curtailed gas output, but certain lobbies have become successful in halting the implementation of the government policy.

The government had approved the policy in January 2025, but not a single company has so far been able to allocate gas to third parties because of the hurdles being created by certain elements.

Sources told The Express Tribune that SNGPL had diverted LNG to domestic consumers, which was valued at Rs242 billion and it would be recovered from consumers as part of the revenue requirement for the current financial year.

Apart from that, the E&P companies had approached the government, voicing concern over the curtailment of indigenous gas supply, which caused losses of billions of rupees.

Sources pointed out that government-nominated buyers – Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL), had entered into long-term LNG supply contracts with Qatar Energy and Eni, respectively, for the import of 10 cargoes per month, equivalent to 1,000 mmcfd.

LNG had been mainly imported to meet demand of the power sector while the remaining quantity was made available to the industry (processing/captive plants).

Furthermore, the LNG sale-purchase agreements carried a 100% take-or-pay clause for PSO/PLL, whereas, instead of adopting the same clauses, gas supply deals with power plants were executed initially with a minimum 66% take-or-pay clause and were later revised to 50% effective from January 1, 2025.

Sources said that the revision in agreements irked the Petroleum Division and even petroleum minister publicly blamed the Power Division for the gas glut.

They said that before the commissioning of LNG-based power plants, it was envisaged that those plants, being the most efficient, would be placed higher in the economic merit order and/or declared as must-run plants. However, with the passage of time, the LNG demand from the power sector declined substantially due to the availability of electricity from other sources, which led to a surplus in the system.