LNG import plans: Consumers may soon face doubled gas prices

Project to result in inflated gas prices; Dutch firm may sue govt if implemented.

ISLAMABAD:

Gas consumers may face over a 100% rise in natural gas prices if a Liquefied Natural Gas (LNG) import plan proposed by the petroleum ministry is implemented. The ministry wants to import 500 million cubic feet per day (mmcfd) of LNG through the Sui Southern Gas Company (SSGC) under a short-term plan, and additional imports through the private sector in the long run. The imported LNG will be injected into the gas distribution network, in order to improve the overall supply of the fuel.

The Economic Coordination Committee (ECC) has already approved a summary for the setting up of Liquefied Petroleum Gas (LPG)-air mix plants. The implementation of the plan will result in a hike in natural gas prices by 29% of current prices through the injection of 150 mmcfd of LPG in the gas distribution system.

The disclosure – worrying for domestic consumers – came in a meeting of the ECC held on August 7. In the meeting, Planning Commission authorities pointed out that consumers would be paying up to $10 per dollars per Million British Thermal Units (MMBTU), against the existing tariff of $2-4 per MMBTU.

The ECC has approved the short and long-term LNG import framework proposed by the Ministry of Petroleum and Natural Resources: however, the ECC has formed a technical group comprising the secretaries of the petroleum, finance, water and power ministries; the deputy chairman of the Planning Commission; the chairman of the Board of Investment; and the chairman of the State Bank of Pakistan to work further on the mechanism, bidding details, guarantee matters and legal issues regarding the plan.

One of the participants of the meeting told The Express Tribune that the petroleum ministry had proposed taking a weighted average of gas locally produced and the LNG in the system to determine its price. The ministry further insisted that all consumers; including domestic, commercial and industrial; should face the hike in price.

However, sources said the Planning Commission has strongly opposed the move to pass on the impact of higher prices to consumers.

“The Planning Commission is of the view that the impact of the price hike should be passed on to the power sector, which will be the real beneficiary of the LNG import plan,” sources said. Planning Commission authorities had said that LNG is being imported essentially as an alternative to furnace oil, and therefore the power sector should bear the additional costs.

The Planning Commission has also proposed to the ECC that LNG be imported at 80% parity of furnace oil prices, so that cheaper electricity could be produced by the power sector.

“The government claims that the country will save billions of dollars through the replacement of furnace oil with LNG, as the latter is a far cheaper fuel. It is, therefore, strange that the petroleum ministry wants all sectors to bear the dint of the hike,” a senior official within the petroleum ministry said.

He said the petroleum ministry contends that the domestic sector is already subsidised, and would benefit from an additional subsidy if it is exempted from the gas price hike. Petroleum ministry authorities further said that electricity rates would jump if the impact was passed on to the power sector only.

Sources also revealed that during the meeting, the finance minister, finance secretary, Planning Commission deputy chairman and the law minister opposed the LNG import plan on one other ground: they fear that Netherlands-based firm ‘4Gas’ will move international courts if the project is reinitiated.

In a letter written to ECC Chairman Dr Abdul Hafeez Sheikh, 4Gas – which had earlier been involved as the developer of the Mashal LNG import project – warned litigation if the project was retendered. 4Gas has reiterated its readiness to implement the Mashal LNG project within the framework of a Supreme Court decision in this regard.  The company’s CEO had said in the letter that 4Gas has vested legal rights as a duly qualified successful bidder, and the contract remains intact as it was neither revoked by the Supreme Court nor cancelled by the ECC.

Published in The Express Tribune, August 10^th, 2012.