Finally, the ball is rolling. With allocation of pipeline gas capacity, the possibility of having new LNG terminal(s) is high. Any new terminal will be on a take and pay basis and the government will not assume any risk. There is growing market of imported gas. All investors want guaranteed pipeline capacity with which they can ensure certain volumes handling have commercial viability. However, there is one caveat. As per Ministry of Petroleum presentation in CCoE, the firm commitment of 500-600 MMCFD is proposed on a three-month rolling basis. This needs to be revisited as guaranteed availability will ensure projects bankability.
The two new terminals could significantly improve LNG security in Pakistan, and the reliance on spot buying cargos would be less; and that would take the media sensation out of the sector. The two existing terminals can handle 6 cargos a month each. This implies that one cargo coming every 5 days at each terminal can ensure 1200 MMCFD handling a month. At the same volume, with a third terminal, the storage will jump to 7.5 days and by having fourth, the terminal handling per cargo can reach 10 days. This is good for energy security. And potentially, higher number of cargos can be handled to cater for peak demand and to reduce the risk on the system by delay in any cargo. For instant, recently a cargo on one terminal was delayed by two days, and the supply got short for Sindh industrial consumers.
Two companies -Energas and Tabeer Energy have acquired licenses to procure and handle LNG. However, the projects were stuck at the pipeline availability by Sui companies. Some were of the view that there is not ample capacity and whatever is available should be allocated to the existing two terminals as they can expand – Engro has had an option of keeping a bigger FSRU. Others think that having new terminals is better for reducing supply risk by diversification. And with one (or two) FSRUs coming, the storage would double.
However, FSRU is temporary storage and not an asset of the country. Therefore, theoretically, it is better to build onshore gas storage facility. That is to not only build strategic storage but also can help in buying off-peak season for peak days, as this could save cost of buying expensive gas in peaking season. This arbitrage was attempted to exploit by other countries – such as Dubai and Singapore; but seeing that producers altered the spreads (supply in peak season) to kill the arbitrage. Nonetheless, onshore capacity would be a strategic asset. The purpose should be to develop strategic storage; but should not be seeing as an arbitrage opportunity on winter-summer spreads. Its expensive and higher storage capacity should be built to attain economies of scale. Returns are in long term. Private sector doesn’t have muscle or viability to build these. Government of Pakistan lacks fiscal capacity to do so. Hence, having FSRUs by private sector is the best bet.
The energy minister is convinced on this philosophy. And the ministry finally found excess capacity in pipeline system. Total SGNP pipeline capacity – from south to north, is 1,200 MMCFD. The long-term contract is of 900 MMCFD and this will increase to 1,000 MMCFD. Within it, 150 MMCFD is committed to be supplied to KE, and 150-250 MMCFD is being provided to Sui South customers. SSCG south network can handle 600 MMCFD. This leaves 500-600 MMCFD collectively excess capacity from both SNGP and SSGC, and 250-300 MMCFD each to be supplied to Energas and Tabeer Energy.
The question is given volumes of excess capacity and demand, is having two terminals viable? May be not. Gas load varies from 1500-1800 MMCFD. The existing two terminals are handling 1200 MMCFD. This leaves 300-600 MMCFD per month for new terminals to handle. The commercial viability of a terminal is on every month handling of 300 MMCFD and to handle 600 MMCFD at peak. Thus, at this point, it seems one of the two terminals will be built. The demand is growing every year. Hence, the second terminal may come in a few years.
The next question is what type of consumers the new terminals would handle and would it cannibalize the existing good paying Sui customers? SNGP is not happy with new terminals as they fear that the new terminals will take away their existing good customers. And this would leave them with low paying large number of domestic consumers and that would increase its losses. Well, with this philosophy, the gas marketing sector could never deregulate and liberalize.
The board of SSGC is supportive of private sector. Shamshad Akhtar – chairperson of SSGC, is a seasoned economist and she understands the benefits of privatization, deregulation, and liberalization. The market can only develop by bring competition to sui companies. Private sector presence can eventually be better off with new private players coming in. For instance, marketing efforts by Shell in Oil marketing business in 90s forced PSO to work on improving its brand. Eventually, the market size grew and PSO kept its lion share. Sui companies should get aspiration from PSO.
The new gas companies would not have access to cheap domestic gas as is the case for Sui companies. The cost structure is in favour of the latter. There, marginal cost varies from domestic fields and on imported buying. The new players will bring efficiency in imported gas, and that would force Sui companies to be efficient in their allocation. They need to think on diverting cheap gas to low revenue customers or can come up with other ways. The point is by having level playing field for everyone, eventually complacent players will have to come up to the mark. And its win-win situation for all.