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EDITORIAL: Sometimes it seems that a new crisis about the energy sector makes it to the news with every passing day, leaving the government scratching its head about how to ensure supply and control prices and the people wondering about how they’ll be made to pay for it; like every time. Now, on top of all the headaches that the government must have got from issues like supply, prices and the need to raise tariffs, it turns out that the country’s Liquefied Natural Gas (LNG) value chain is over-stretched and could well prove to be an operational safety hazard. According to a report presented by Pakistan LNG Limited (PLL) and Pakistan LNG Terminal Limited (PLTL) to the government, the LNG value chain is “very fragile” according to tall global standards, which can cause serious operational problems. All this of course flies in the face of the common perception that LNG terminals are in fact under-utilised.

“Even with low ratios of ‘re-gas to storage’ and ‘LNG import capacity to storage’ the overall utilisation of LNG terminals across the globe is approximately 43 percent (whereas) Pakistan’s utilisation is at a remarkable 84 percent despite having extremely inflexible infrastructure and other constraints,” the report notes. It goes on to mention that one of the terminals is nearing 100 percent utilisation rate, which leaves “very little flexibility to handle shocks.” There is also the rather unsettling revelation that when compared with global and European averages, “Pakistan’s utilisation rates are 249 percent and 196 percent, respectively. Storage and utilisation have caused problems for quite a while now, even as nothing of note has yet been done about it, but now there are also the added constraints of port infrastructure and gas pipelines. And it seems that it will now be practically impossible to operate terminals at near-maximum throughput capacity.

That is why the report warns the government to brace for substantial disruptions in the entire supply chain, in addition to recurring cost implications which will outweigh any expected benefits. The government no doubt understands this because one of the most valuable lessons learnt from the recent controversy about LNG price volatility was about the urgent need to create cost-effective storage options. Solving the storage problem is critical for Pakistan. It is, according to reports, the world’s eighth-largest market in terms of LNG usage, yet the 18th largest when it comes to storage capacity. With the two existing LNG terminals making up for about 320,000 cubic meters of storage, it is essential to work out alternative storage mechanisms to add a measure of flexibility to the gas supply chain. The government’s efforts to rationalise LNG deals, and practically all other measures, will only achieve so much if storage continues to be such a big problem that it can derail the whole system.

This is hardly the only red flag in the LNG value chain. Just last month PLL (Pakistan LNG Limited), a 100 percent state-owned company, defaulted on LNG payments to United Bank Limited (UBL) and was begging the petroleum division to do something about outstanding receivables from Sui Northern Gas Pipelines Limited (SNGPL) which by then had risen to Rs61.2 billion, putting the entire chain in jeopardy. The government must quickly take a step back and work out a strategy to solve all these problems one by one before the whole thing falls like a house of cards. The prime minister has often mentioned energy as perhaps the biggest problem facing his administration. Yet, for all the concern, targeted action that addresses core issues has yet to be seen. The LNG infrastructure is very important for the country’s energy mix in the present setting, even though there is a need to diversify out of fossil fuel energy in the long-term. Hopefully, the government has already placed all issues relating to the LNG chain very high on its priority list. It has already spent a lot of time, and made a number of high-profile phone calls, to get LNG at better prices than before. It must also make sure that the infrastructure is up to modern day standards and requirements.

Copyright Business Recorder, 2021

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