Stuck in a quagmire: Road from LNG to CNG remains a mystery

Multi-million dollar import proposition along with gas prices left unexplained.

KARACHI:

Confusion persists over the purpose of a press conference by Federal Petroleum Minister Shahid Khaqan Abbasi that was held last month on the subject of substituting domestic gas supply to CNG pumps with imported fuel.

Abbasi said owners of compressed natural gas (CNG) stations will be responsible for importing liquefied natural gas (LNG) to meet their needs, freeing up domestic supply for other purposes like power generation.

But how the All Pakistan CNG Association (APCNGA) would manage the multi-million dollar import proposition was left unexplained. Now, the association states it will most probably buy LNG from whoever else imports it.

“Anyone can import LNG. There are so many investors wanting to do this,” said APCNGA Chairman Ghayas Paracha, who was with the petroleum minister during the press conference. “We will buy it from the party offering us the minimum price.”

Reminded that it was specifically mentioned that his association will be responsible for the import and that there is no one from the private sector who has come forward yet to take up the responsibility, he said: “Yes, we could probably do that ourselves. The option is open.”

In this case, industry people say, importing LNG requires special-purpose vehicles backed by billions of rupees in assets. The importer would also have to arrange working capital of at least $250 million (Rs25.5 billion) from banks to cover at least a three-month supply.

Paracha says that out of the 2,200 owners of CNG pumps in Punjab, around 1300 have consented to be part of the arrangement. “This model is specifically for Punjab where 430 fuel pumps are closed because of gas shortage.”



Pakistan meets half of its energy needs from gas, all of which is extracted locally. It produces around 4,000 million cubic feet per day (mmcfd) whereas demand, as per estimates, has touched 6,000 mmcfd.

The CNG sector across the country uses approximately 600 mmcfd but with the shortage at power plants, fertiliser companies and households, many have started to question the rationale for using gas as an auto fuel.

Abbasi continued to insist that the CNG association would import LNG. “Of course it’s doable. Considering the problem they face, surely these 1,500 businessmen can come up with Rs10 million each (Rs15 billion) as working capital.”

He said those who choose to be part of the scheme would receive uninterrupted gas. “It’s a win-win situation for everyone. But one thing the CNG station owners should realise is that if this doesn’t happen then they should just keep waiting for gas.”

This LNG-for-CNG model is premised on the notion that imported gas will continue to remain cheaper than petrol. Abbasi has even said that CNG rate will go up by only 5% to 6%.

According to ICIS, an energy information provider, the October-September LNG contracts were priced at $14.7 (Rs1,500) per mmbtu in East Asia. Right now, the CNG stations are paying a fixed price of Rs656 per mmbtu to SSGC and SNGPL.

“There is no way this model can work,” said a former head of Interstate Gas Systems. “For this to work, a weighted average mix of 70% local gas and 30% imported LNG would have to be used to make CNG affordable on the streets.”

Even then the CNG price would have to rise by 38% – not 5% to 6%.

What is even more critical is the way LNG is bought. “The consignment is booked against an upfront payment. The money has to be moved to an escrow account. What would happen if the CNG can’t be sold at a higher price?” the official asked.

Published in The Express Tribune, October 4^th, 2014.

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