LPG – a rising reality

The lesser talked fuel LPG – Liquefied Petroleum Gas – has a much larger consumer base and is gradually becoming a popular fuel for domestic sector as well as transport. While its share in comparison to crude oil and natural gas remains very small, the fuel has witnessed significant growth over the last few years.

Current annual consumption of LPG is around 1.2 million tons, and around 65 percent of LPG consumption is met with local production, whereas the rest is imported. Local production comes from the refineries and gas fields held by the E&P companies, and the imports largely come from the gulf countries.

Domestic LPG production is on the rise. Oil and gas exploration and production companies are witnessing an increase in LPG production, due to increased development activity and expected expansion of LPG projects against a rising price backdrop. According to a research note by AKD Securities, the revenue stream of domestic oil and gas E&P companies increasingly constitutes of a larger portion of LPG sales. From 2.7 percent share in revenues of the three major E&P companies (OGDCL, PPL, POL) five years ago, LPG sales now have a share of over 7 percent due to increased development activity in key LPG gas fields namely Nashpa, Kunnar Pasakhi Deep, Adhi, Maramzai and Makori East.

Going forward, on-going developmental projects and upcoming discoveries have good hopes for LPG. Hascol Petroleum Limited has also completed its acquisition of a LPG plant from Marshal Gas (Private) Limited, and intends to commence operations immediately upon receipt of NOC. As Per OGRA’s Annual Report FY17, investment of around Rs3.73 billion was made in the LPG supply infrastructure with total investment in the sector till date estimated at about Rs26.18 billion.

However, recently LPG has come in the limelight not because of its rising relevance, but because of the pricing issues. The government has waived the regulatory duty on imported LPG, which has resulted in an uproar in the domestic LPG sector. In other words, local industry feels that reducing taxes and duties on imported LPG would make indigenous LPG expensive; whereas, the end consumers might not benefit as the exporters of LPG (gulf countries) could increase prices as a result of removal of taxes and duties.

LPG was a deregulated product - where the production and consumer prices were deregulated up until the LPG Policy 2016 when the previous government decided to regulate LPG prices. This meant that the public sector companies such as PSO and SSGC are not only dealing with price fluctuations but also have to import the quantities determined by OGRA and the federal government. However, the PTI government has now decided to switch LPG back to deregulated market. This would also call for an amendment in the LPG Policy 2016; which requires that the subject be taken to Council of Common Interest (CCI).