Pakistan energy sector dynamics are cutting a sorry figure. Planning and decision-making is being done in silos and based on constraint demands, and the government commits long term contracts without doing dynamic and integrated planning. The result is crippling shortages or expensive surpluses– that has happened in power sector due to poor planning and execution in installing IPPs.
A similar phenomenon is being witnessed in the RLNG sector where long-term contracts were made in desperation at the time of shortages due to declining domestic gas supply, and now the expensive RLNG is in surpluswhose cost of recovery is nearlyimpossible, and it is curtailing further the already fallen domestic gas supply.
The government is using the contract provisioning with both Qatar Energy and ENI to reduce twenty-four and eleven cargos, respectively, for 2026 under Net Proceed Differential (NPD) arrangement. This along with flexibility allowance wouldresult in approximatereduction of 40 cargos next year which translates into slashing of over 300 mmcfd expensive RLNG.
Thesupply side implications are to have better production of domestic gas which is not only cheaper but also to save precious foreign exchange. On the demand side, industry must forget, any supply of RLNG next year, even if the levy imposed under the pressure of IMF is waived off.
That is perhaps the rational decision petroleum ministry could take today. The minister, Ali Pervaiz Malik, is doing honest conversations with Qataris and salvaging otherwise a catastrophic situation.
It’s a short-term fix while any long-term solution cannot be achieved without having power and finance ministries on board to save the RLNG oversupply fiasco. In fact, these two ministries must take the blame for creating this mess in the first place.
RLNG contracts were done based on demand from the power sector which was demanding 800-900 mmcfd in FY20-23 and a new contract was signed with Qatar during that time. Power sector calculations were based on unconstraint demand,which is a flawed concept as there is always a price constraint. The planning was done in air, and the result is as expected – when the prices moved up, the power demand fell, and so is the off-take of RLNG.
In FY25, power demand of RLNG is reduced to 200-600 mmcfd. That leaves petroleum division into a fix on how to sell the must import RLNG. The situation becomesworse when power and finance ministries pushed the IMF to impose prohibitive levy on RLNG for captive power plants which was the best paying consumer of RLNG.
Captive folks moved away from gas. The ideal situation should have been that power division to jack up RLNG demand as captive users were supposed to move towards grid. However, the demand remained between 400-600 mmcfd in 4MFY26. The question is where to take the RLNG in a country where there is no storage facility.
The problem exacerbatesby incorporating the duck curve into the equation. With increase in solar based power generation,the demand during peak solar hours (7am to 3pm) sharply dip while it increases during peak hours.
That has an externality on the gas sector –for example in October 2025, during daytime when sun is shining, gas demand ranges usually between 200-300 mmcfd while maximum demand went up to 800 mmcfd. How can petroleum sector manage this supply without any storage? They have to keep higher supply for peak hours, but pipelines bursting risk increases in shoulder hours. To avoid any accident, domestic supply was further curtailed.
Now with reduction in RLNG cargos in 2026, the gas demand and supply situation to improve. Although, it a right approach, it is a short-term fix.
The government must have revised the net metering policy. Everyone knows what the right policy is, but no one has the courage to do it. The buck stops at petroleum division to reduce RLNG supply.
There is price opening of our two RLNG long term contracts with Qatar in 2026. The government may not be able to move away from it and may try to negotiate price a bit. There is going to be global supply glut from second half of 2026 and prices may dip. Let’s see how much Pakistan can negotiate on it.
As of now, we have to live with NPD, and if the price for diverted cargos is less than our contract’s price, gas consumers pay the bill or it would become part of gas circular debt. Anyhow, it is better than selling those cargos to domestic consumers at a small fraction of the cost.