A gas load management plan, submitted and approved by the Cabinet Committee on Energy (CCoE) two months ago, envisaging cutting supply to CNG sector followed by captive power plants (for non-export oriented units) to deal with supply shortages this winter, was revealed during a joint press conference of Omar Ayub, Minister for Energy and Nadeem Babar, Advisor to the Prime Minister on Petroleum. Load management plans for the gas and electricity sector have been a feature of Pakistani administrations for decades and the priority accorded to each sector in terms of access to gas has not significantly varied.
It is important to highlight the fact that gas development plans year after year, decade after decade, reflect the predominance of structural issues that remain un-resolved to this day. The shrinking supply of domestic natural gas, with a price tag well below all imported fuels including Liquefied Natural Gas, remains a major stumbling block in the smooth and economically viable operations of Pakistan's gas sector. Demand rises significantly from upcountry areas during the winter months because gas is used mainly by the domestic sector for cooking as well as fuel for vehicles. It is, however, quite unfortunate that gas is used for heating purposes as well.
Domestic gas output has been shrinking over time, and sector experts have condemned the use of this scarce resource for domestic use; and have persistently urged Pakistani governments to use domestic gas to enhance efficiency that, in turn, would lead to higher productivity, higher exports, and more employment opportunities. In this context while the decision to accord least priority to the CNG sector is appropriate yet the fact that CNG continues to be supplied as fuel for vehicles is baffling especially given that the Prime Minister has repeatedly declared that the country should move towards electric cars.
Another major problem associated with domestic gas sector is its much lower cost of extraction and consequent price relative to imported gas/fuels. Lending agencies have been recommending that Pakistan brings the price of local gas at par with the price of imported fuel (inclusive of Liquefied Natural Gas) to ensure that domestic gas is used optimally in economic terms. This, unfortunately, has yet to happen in spite of the 143 percent raise in gas prices in September 2018 by the Khan administration followed by a 200 percent raise beginning July 2019 (the month when the International Monetary Fund's 6 billion dollar Extended Fund Facility Programme became operational). The cabinet under the chairmanship of Prime Minister Khan refused to approve the recommendation by Oil and Gas Regulatory Authority (Ogra) in May 2020 to raise rates for Sui Southern Gas Company Ltd (SSGCL) by 28 percent and by 47 percent for gas supplied by Sui Northern Gas Pipelines (SNGPL) - a refusal which is raising the circular debt of the gas sector as per Nadeem Babar.
A further complication to a more effective handling of the gas sector is in Article 158 of country's constitution stipulating that "the province in which a well head of natural gas is situated shall have precedence over other parts of Pakistan in meeting the requirements for that well head." This stipulation increasingly implies that as domestic gas shortages rise, Balochistan, Sindh, and to a lesser extent Khyber Pakhtunkhwa are increasingly unwilling to purchase the expensive imported LNG.
Nadeem Babar is facing considerable criticism for not booking LNG cargoes in June when price is typically low (as demand is lower) to be delivered in December when the price is high. His response is that the suppliers charge December rates for cargoes booked in June - a claim that can be challenged on economic grounds because a supplier receiving payment in June would earn money on the capital and therefore not likely to charge the higher rate that he may project for December.
Copyright Business Recorder, 2020