LNG and the private sector

Earlier this week, OGRA issued two new gas marketing licenses to Energas and Tabeer. If these have tie and point and gas transportation agreements with Sui companies, they will be able to build their own terminals. Right now, these can only use the excess capacity on existing two terminals by underwriting government guaranteed capacity.

These two are not the only ones in the race of importing RLNG on private basis. Both existing terminals, Engro and Gasport are also trying to enhance the RLNG handling capacity at the existing terminals. There already exists a license for the consortium of CNG gas stations. Then Shell is standing in line to get a gas marketing license. The pipeline capacity is to handle volumes (in addition to 1,200 mmcfd) of 200-250 mmcfd. Thus, seeing this, there is space of one additional terminal. The race is on.

The government has underwritten 1200 mmcfd gas from existing two terminals and is paying terminal charges on these with our without importing gas. There is a case of full utilization in winters, but in summers, there is space. The government in principal has decided to give that capacity to private sector. And a tussle is ongoing between the private players. But the government is saying that they can withdraw the capacity sold anytime. With this condition no one would come.

The problem with the government is that they get demand from Sui companies and power plants and decide to import accordingly. The merit order of power plants is decided at 2-3 weeks’ notice, while the government procurement process for LNG reaching Pakistan takes 40-70 days. The mismatch is causing problems and inefficient decisions are being made. With private sector coming in, the processes can be more efficient.

The question is about the demand of the RLNG and at what price. For details read “Gas demand question” published on 11th December 2020. Then the prices for different buyers is different, and there are gas supply agreements in new RLNG plants. The situation is not that simple.

Having said that, private sector can open up the market. This can solve the power plants problem that are on merit order only if they run on gas. Then the number of industrial players want gas at ease. Right now there is monopoly of Sui companies and at instances, industry has to pay speed money for getting gas pressure. The industry wants to get out of this. But Sui companies want to maintain monopoly for obvious reasons. That is why some private industrial players joined hand to build their own terminal.

If the private sector comes in, the gas distribution sector will start becoming efficient. Good players will start moving to private sector, leaving bad costumers to the Sui companies – a problem. Anyhow, this could well be the beginning of the end to Sui companies’ hegemony.