Gas consumers to pay extra Rs46b

As gas utilities face multibillion-rupee losses due to terrorist attacks, the government is studying a proposal to establish 14 dedicated wings keeping in view the CPEC model for security framework to ensure the safety of gas pipelines as well as oil and gas exploration companies, mainly in K-P and Balochistan.

The total cost of setting up these wings has been estimated at Rs46 billion that will be recovered from consumers by increasing gas prices. Sources told The Express Tribune that during the last two years, around 23 sabotage incidents had been reported on Shewa and Bettani pipelines and Sui Northern Gas Pipelines Limited's (SNGPL) main network in the north. These incidents have resulted in an estimated gas loss of 7,624 million cubic feet, equivalent to about 25 liquefied natural gas (LNG) cargoes. The estimated financial loss incurred is Rs12.7 billion at the local gas price of $6 per million British thermal units (mmBtu) and approximately Rs27.7 billion at the re-gasified LNG price of $13/mmBtu.

If supplies from northern sources are fully suspended, the diversion of expensive RLNG to meet consumer demand will add Rs97 billion to SNGPL's annual revenue requirement as a cost recovery element, leading to an increase in the utility's prescribed price by about Rs333/mmBtu from the existing Rs1,719/mmBtu to Rs2,052/mmBtu for the current financial year. In order to mitigate such a situation, an immediate and structured intervention is required to put in place a robust security mechanism to protect the existing infrastructure and enable companies to timely develop future discoveries for their connectivity to the national gas grid.

Some of the recent gas finds in Khyber-Pakhtunkhwa (K-P), particularly Mami Khel, Shewa and Spinwam in Waziristan Block, OGDC's Bettani under Wali Exploration Licence and Al-Haj's Koi Palak in Baska North Block, are strategically important additions to the country's indigenous gas supply. All these recent discoveries currently contribute 146 million cubic feet per day (mmcfd) of gas to SNGPL's northern pipeline network, while other northern sources provide 410 mmcfd, taking total inflows through indigenous sources to 556 mmcfd.

From the time of discovery until the commissioning of production facilities and injection of gas into the SNGPL pipeline network, the infrastructure, especially pipelines, has remained exposed to frequent terrorist attacks, which raises questions over security arrangements despite heavy annual expenses on them. The security environment around key pipeline corridors and operations of oil and gas exploration & production (E&P) companies in these areas, particularly in parts of K-P and Balochistan, is facing challenges.

Sources said that various security-related deployments were already in place across sensitive pipeline corridors, including Shewa-Kaka Khel, Kot Palak-DI Khan/Pezzu, Bettani-Kaka Khel, Kharappa-Marjuwala and Kharappa-Gurguri Makori segments. The number of security personnel deployed for the protection of SNGPL pipelines is around 1,513, with an annual cost of about Rs3 billion.

Separately, E&P companies have currently deployed around 1,828 personnel for shielding production facilities at an annual cost of around Rs2.174 billion. The combined existing security arrangement comprises about 3,341 personnel and costs Rs5.174 billion annually. Given the criticality of the issue, the minister for petroleum division held a series of meetings with Sui companies and E&P firms on the security challenges and to assess the efficacy of existing arrangements and firm up further requirements. After detailed deliberations, a two-part security mechanism was agreed.

Pipeline network

Under this framework, four dedicated regular wings are proposed to be raised for the protection of SNGPL pipelines and northern gas sources. The estimated cost of setting up the four wings is Rs12 billion while Rs4 billion is calculated as the annual recurring cost, taking the total cost to Rs16 billion. After adjusting the currently deployed two wings, the additional net requirement for the other two wings is estimated to cost Rs8.969 billion along with annual recurring cost of Rs2 billion.

E&P operations

For exploration, seismic data acquisition, drilling, wellhead facilities, gas processing and related E&P activities, it is proposed that 10 dedicated regular wings be raised modelled on the China-Pakistan Economic Corridor (CPEC) security framework. Of these, four wings will be placed in K-P and six in Balochistan. These wings are required to support planned data acquisition and field operations across multiple districts in the two provinces, where security constraints continue to delay exploration and development activity.

The total cost of establishing the 10 wings is estimated at Rs30 billion, comprising Rs12 billion for K-P and Rs18 billion for Balochistan. It is proposed that this cost be shared equally among three stakeholders – E&P companies, the federal government and the respective provincial governments, each contributing Rs10 billion.

The recurring cost, estimated at Rs10 billion per annum, shall be borne entirely by the E&P companies. Under this arrangement, there will be no financing cost, no prescribed gas price impact and no pass-through to consumers for the E&P security mechanism.