Shahab Qader - the Chief Executive Officer & VP Commercial at Engro Powergen Qadirpur Limited (EPQL) has had more than two decades of industry experience in the chemical process and power utility industry where his expertise ranges from project development and project execution to operations and management. In addition to having worked through project development and execution at a senior level, Shahab has been part of Operations & Management teams in the first twelve years of his career. He holds a Bachelors degree in Electrical Engineering from UET. He joined the EPQL board in March 2017.

Following are the edited transcripts of the conversation BR Research had with Shahab Qader:

BR Research: Tell us Engro’s philosophy behind its energy investments and projects?

Shahab Qader: Engro Powergen Qadirpur was Engro’s first project in the energy sphere. The company came into being from a novel idea of using waste gas that didn’t have an opportunity cost and was otherwise being flared. It has been our strategy to go after resources that are otherwise not used. Thar coal, which had no use, is another example that attracted Engro. This has been the theme for Engro Energy; we go for projects where we create value of a commodity.

With EPQL, we created Rs87 billion worth of fuel revenue for SNGPL, which would not have been there if this project did not exist. And we saved $1 billion worth of RFO, which would have been imported to produce power. Same is true for 186 billion tons of Thar coal that had zero value until it entered into a transaction that created the commodity’s economic value.

BRR: The potential of Thar coal is now known. Could you explain the potential of flared gas for the energy sector?

SQ: We don’t need imported fuel for the power sector if we plan to fully utilize our local resources such as low BTU gas and Thar coal. Flared gas, or waste gas, or the low BTU gas has been used for a long time where the private sector has been more successful than the public sector. The first project on low BTU gas was Guddu power under the Government of Pakistan, which has been struggling. On the other hand, the first private sector (IPP) low BTU project, Uch in Dera Murad Jamali that was roughly around 560MW power is performing up to its full capacity so much so that they have set up another 360MW plant to make use of the low BTU gas.

The start of low BTU gas in the country was first made for the fertilizer sector. Mari was also a low BTU gas initially for the fertilizer sector in the 60s, after which fertilizer plants started mushrooming in the private sector; all these plants are working at full capacity to date. Hence, the private sector has been successful in the low BTU segment and has created value.

The reservoirs that exist for low BTU gas are in Mari, Kandhkot, Qadirpur, and Uch. Qadirpur was the biggest field for the low BTU gas since 1995, but the permeate gas, which is a form of low BTU gas with high sulphur content in Qadirpur is now depleting. From its peak of 600 mmscfd, it is producing 200 mmscfd today and this trend of depletion will continue. There are also some reserves in Kadhara near Sukkur, Badar field and some other concessions held by the private players. Overall, you can say that the Ghotki area is the capital of low BTU gas. But there is still a lot to be explored in the low BTU realm.

BRR: How did Engro discover low BTU gas in Qadirpur and what has been its performance?

SQ: We started production from the Qadirpur field in 1995. Since the gas from this field had higher sulphur content, the mine purification or chemical treatment method wasn’t used. Rather, the membrane method was used to purify the gas that produces two streams: one is purified gas and the other is the permeate gas. Since permeate gas contains high sulphur, it’s not suitable for pipelines. The only alternative use for permeate gas is to flare it. From 1995 till 2010, 80-90 mmscfd of permeate gas was being flared. That is equal to flaring around 50,000-55,000 million BTU per day in terms of heat content for which we couldn’t find an alternate use. For context, one cargo produces 100 mmscfd of RLNG for thirty days.

So when we decided to come into power generation under the 2002 policy, this is where we saw the opportunity and potential for engineering excellence, risk taking and innovation. In 2005, we presented a proposal to the government for a power project on flared gas. We were allocated this gas and a feasibility study was conducted, which identified that the 9E technology of General Electric should be deployed for maximum utilization of gas. The GoP and the company set up a 217MW power plant with a commercial operation date in 2010. This project was the only project of 2002 policy other than Uch-II that was fully financed by foreign investors and multilaterals. It was also an environment friendly project as no additional CO2 was being produced for the generation of power. This project was saving forex and was using a commodity which was otherwise completely being flared.

The project lived beyond its contemplated life of 5 years. It was expected that the gas from the field would deplete in five years from 82 mmscfd to a point where it would not be enough for the plant, which was around 62 mmscfd. It was also projected that the process of depletion would complete in two years, which meant that there would be no gas in 2017. However, none of that happened. The gas dropped below 62 mmscfd level only in 2018 - three years later which is 60 percent additional gas from the plant. It’s almost 2022, and there is still gas being produced from the field.

The designed capacity of the project was 44 billion units with 10 billion units projected to come from permeate gas and 35 billion units from alternate fuel such as RFO, diesel etc. As of now we have produced 16 billion units with the ability to produce an additional 6 billion units by 2035. So the plant will actually be delivering 22 billion units against the projection of 10 billion units. The investors and shareholders have benefited from debt servicing and ROE of $194 million; and the government will end up with around $1.7-1.8 billion forex savings with a $130 billion revenue for the E & P companies over the life of the project.

BRR: As you mentioned that the gas from Qadirpur field has started depleting, where do you see the additional 6 billion units of power coming from?

SQ: We have a policy call on producing these remaining 6 billion units. Gas from the field has started depleting and in some time, it will drop below the level required by the plant to operate. We have two options to go forward: one is to shut down the plant and flare the gas, and the second is to co-mingle the gas with an alternate fuel such as HSD or RLNG. Ideally, the alternate fuel should be cheap and environmentally friendly, for which we have approached the government for RLNG.

BRR: Coming to Engro’s entry in Thar coal, what parallels can be drawn with low BTU permeate gas? What is the potential?

SQ: Mari was a low BTU field whereas Sui was a high quality field when these two were discovered roughly around the same time. Gas from Sui could easily be transmitted through pipelines to the consumers, while gas from Mari field was stranded and of low quality that could not be transmitted to load centres. That is why a fertilizer plant was set up to make use of the gas from Mari.

Similarly, for Thar coal that could not be transported easily because of its high water content, a mine mouth power plant was indicated to be the best use of the local resource. We wanted to create an image for Thar coal as a resource that did not have a onetime use. So while we started with a 660MW power plant in the first phase, we showed a whole roadmap of how we will reach 4000MW and how this will unfold dividends for the economy. It’s a fact that in the initial phase, imported fuel seems more feasible, but the story starts changing as the mine grows. So the idea has been to support Thar coal not just for one transaction but all along the life of the resource. We were able to address a major issue with the plant at mine-mouth, which led to industry-wide changes and direction in either using Thar coal for mine-mouth plants or using imported coal for plants at other locations. It also gives us the opportunity to figure out how we can serve the customer that chooses to set up a plant away from the Thar coal field and uses imported coal by innovating, designing and improving logistics. The potential doesn’t stop here; beyond Thar coal mine-mouth plant, the opportunities are numerous and Thar coal could become a player just like Low BTU gas, pipeline gas and RLNG are players.

BRR: What does the government need to do to bring low BTU to its potential?

SQ: We are using our project as a pioneer for how the stranded gas can be transmitted to the customer through value addition. The potential of stranded gas can be maximized if we project and showcase its utilization the way we have done for low BTU gas from Qadirpur. We must not forget the development happening in the power sector where there are efforts being made to open up the power market which will not make developers immune to the fuel price risk as it was earlier a pass through item.

BRR: What are your views on the IPP structure?

SQ: I believe it has been lopsided. The government has picked up the market risk in the IPP sector. On the fuel side, the supply risk is with the developer, while the price risk is with the government. The supply lines for imported fuel are much deeper, secure and liquid as you can buy any amount of RFO or coal if you are not concerned about the price. This makes supply risk negligible. However, the price risk is high as prices are volatile. On the local fuel front, there is price control since it is regulated and determined by the government; whereas supply is patchy - and hence it’s a significant risk in local fuel. This is why I believe it is lopsided as the high supply risk of local fuel is passed onto the developer with the benefit of price hedging accruing to the government. Why would the developer then prefer local fuel over imported fuel?

Pakistan can very easily meet its energy needs if the market structure is revamped and corrected. The market should decide the winners and the losers. Energy is a very dynamic business in nature that requires agility and quick decision making; so it’s in the best interest of the sector to let the market drive it. Governments all around the world need to be slow and cautious because they need to create consistency and precedence. Role of the government in the energy sector should be limited to regulation and policy making.