The ongoing LNG debate, especially the one aired as a “great” debate, seems to have served the very purpose most TV debates in Pakistan do. Further polarization, with arguments going to the backdrop. Most important of the few valid points raised in the debate was the treatment of LNG pricing and the options to use weighted average pricing to bridge the gap from domestically produced gas.
Recall that domestic natural gas is priced at an average of $4.59/MMBtu. The LNG average consumer price as decided by the regulator has averaged $10/MMBtu on a 12-month moving basis. The disparity is huge and there will always be repercussions of opting for a simple blending of prices using weighted average.
Now the government officials have of late, taken the liberty to lay the entire blame of the inability to adopt weighted average price mechanism. The story goes that LNG is legally declared a petroleum product and not gas, which restricts the government’s mandate to opt for blended gas pricing mechanism. The argument is only fair as far as the fact is concerned, that LNG is indeed a petroleum product by law and needs to be run in accordance with the relevant laws.
But who is to take the blame for not being able to initiate the required legislation to change the status quo? The government, by definition, is the government because it has majority in the house to table, and eventually get the laws passed. Not for nothing are the elected members called the “lawmakers”. But if you have not promulgated a law in effect to change what you believe is a major hurdle in ironing out the gas price issue – you are more responsible than your predecessors. Solely, because of inaction, on what you think is a problematic law.
Or is it that the government also believes that implementing blended price is easier said than done? Surely, there will be ramifications of large magnitude when you try and blend the domestic consumer gas price. The domestic gas consumer pays less than $2.7/MMBtu and makes for nearly half of the consumption pie. And that is after two massive rounds of price revision since the government took over. Surely, there is not enough political capital available to think of another substantial upward price revision for domestic consumers. And without that, what will the whole blending exercise mean?
And all that while, the government has been gleefully allowing T&D losses for LNG to be included in the consumer prices. How does that fit into the whole legal equation is a question that needs answers. The average T&D loss allowed in the last 2 years has been 11 percent, totaling to $683 million. It is high time the government finds a legal explanation for this as well.
Meanwhile, serious thinking needs to go into possible avenues for gas demand at higher imported prices. Should blended price be applied to incremental consumption is something that needs to be looked into. Without having a fair demand assessment with scenario analysis, weighted average price of gas would continue to be a pipedream.