Gas needs: Better to tap reserves instead of import

Engro Fertilizers chief says imported LNG will inflate cost of urea production .

KARACHI:

Though there has been much talk about gas import over the years, there are many who insist that the country should tap its own resources and pump money into energy production in the long run.

“Considering the gas shortage in the country, it is better to invest in gas exploration instead of importing expensive LNG (liquefied natural gas) to produce urea, however, in the short run there is no choice but to import LNG,” Engro Fertilizers Chief Executive Ruhail Mohammad said.

Urea production is feasible in those countries where affordable gas is available and Pakistan does not need to import it, he said in an interview with The Express Tribune.

“It is not viable to use imported LNG in urea production simply because it will inflate the cost, however, if the LNG price is set on weighted average basis for the industry, then we will be able to use it for urea production,” he said.



One of the largest urea exporters in the world, Qatar has been able to achieve this status on the back of a huge production of cheap gas. “Were Qatar to import expensive gas, it would not have been able to produce this much urea,” Mohammad said.

Since Balochistan and Khyber-Pakhtunkhwah (K-P) face security issues, Sindh is the only province on which the country can bank on for future gas exploration and production. The government needs to ensure that the country has no idle gas production capacity and the industries get affordable gas, he added.

With new investment in Balochistan and lacking, Sindh produces about 70% of total gas supply in the country.

Imports expensive

Import of LNG will cost somewhere between $14-18 per million metric British thermal units (mmbtu), which is more than double the current cost of gas purchase by fertiliser manufacturers.

Industry officials believe that absence of any international benchmark for gas price, unlike oil, is a big hurdle to determining the LNG import price.

Pakistan has seven major fertiliser manufacturers that depend on supply of gas – the only raw material – to run their plants. Gas is supplied from three sources – Mari, Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL).

Total installed urea production capacity is 6.9 million tons, making Pakistan sixth largest producer in the world. Domestic demand stands at around 5.9 million tons, but the country is forced to go for import as production falls short of target because of disruption in gas supply.

Is the worst behind us?

The fertiliser industry believes that the last four years have been the worst when it faced acute gas shortages. They say the government should provide enough gas to fertiliser plants to enable them to produce cheaper urea and avoid imports.

According to the industry’s rough estimates, Pakistan spent approximately $2 billion on urea import with $335 million only in 2013.

“Pakistan will not see further investment in new urea plants,” said Mohammad, while talking about gas shortages and the high cost of imported gas.

In the last five years, urea prices have increased significantly. In that period, prices rose Rs1,126 per bag, but urea manufacturers claim that 89% of this hike was the result of government taxes and inflation. The remaining 11% was because of gas curtailment as the government did not honour its contracts with fertiliser manufacturers, they say.

Published in The Express Tribune, April 21^st,  2014.

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