Islamabad:
As public gas utilities have long been mired in cyclical debt, hydrocarbon exploration companies are reluctant to grant them gas and prefer third parties for better returns and timely payment of fees.
The situation arose at a recent meeting of the Economic Coordination Committee (ECC) of the Cabinet, where state-owned exploration company Pakistan Petroleum Limited (PPL) withdrew plans to share gas supply with Sui Southern Gas Company (SSGC) and sought permission to supply gas to fertilizer producer Fauji Fertilizer Bin Qasim Limited (FFBL).
The Council of Common Interests (CCI) recently increased the share of gas allocation for exploration companies from 10% to 35%. As a result, exploration companies are turning to third parties to avoid getting stuck in revolving debt payments and to receive their dues on time.
PPL had in November 2023 made a gas discovery at Jhim East X-1 in Shah Bandar Block, located in Thatta and Sujawal districts of Sindh. The concession block is a joint venture between PPL (63% stake), Mari Petroleum Company Limited (32%), Sindh Energy Holding Company Limited (2.5%) and Government Holdings Private Limited (2.5%).
According to the gas production profile, the Jhim East X-1 discovery will be available for six to seven years with first gas supplies in February 2024 and plateau production of up to 15 million cubic feet per day (mmcfd).
The ECC was informed that PPL had earlier sought allocation from Jhim East to SSGC. However, it later sent a revised request for gas supply to FFBL, which was connected to the SSGC network.
PPL was of the view that the allocation of the Jhim East X-1 discovery to FFBL presented a more financially viable option, considering that the fertilizer producer was likely to make timely payments, thus mitigating the cyclical debt issues plaguing PPL along with others oil and gas exploration. and production (E&P) companies.
The revolving debt was increasing due to late and non-payment of invoices by the government appointed buyers viz. SSGC and Sui Northern Gas Pipelines Limited (SNGPL), it said.
The Petroleum Directorate further said that FFBL was currently receiving domestic gas from SSGC on “as and when available” basis and the supply agreement would be valid till 2025.
Due to rapid depletion of natural gas resources in the country, supplying required volumes of up to 55 mmcfd to FFBL has been a challenge for SSGC. Currently, SSGC has averaged 30-40 mmcfd, lower than the initial allocation of 68 mmcfd.
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Tight supplies have limited FFBL’s urea production to 30-35% of capacity, although diammonium phosphate (DAP) production has remained stable.
Considering SSGC’s inability to supply gas beyond 40 mmcfd and the cross-subsidy participation of Rs 580 per million British thermal units (mmBtu) against SSGC’s projected price of Rs 1,351 per mmbtu, the additional gas allocation from Jhim X -1 of PPL will enable FFBL to produce urea at optimal levels.
The FFBL plant had a DAP capacity of 675,000 metric tonnes per annum and its urea capacity would increase by about 200,000 tonnes per annum provided SSGC continued to supply 30-40 mmcfd of gas.
Increased urea production will obviate the need for imports, prevent leakage of foreign exchange reserves and mitigate the impact of subsidies on the government.
The Ministry of Industries and Production had repeatedly expressed concern over the reduction in gas supply to FFBL in the recent past and asked the Petroleum Directorate to take appropriate steps to ensure adequate supply, which would lead to uninterrupted production of urea.
In line with the objective of maximizing utilization of FFBL’s urea capacity and reducing import dependency, the Petroleum Directorate proposed in the ECC meeting that up to 15 mmcfd of gas from Jhim East X-1 be made available to FFBL at well price of $5.6 per mmBtu under the 2012 Petroleum Policy.
The same, he added, could change every two years taking into account the price of crude oil and the exchange rate of the dollar.
It proposed that the distributed gas would be transported by SSGC through its system to FFBL under a mutually agreed transmission agreement.
FFBL will be required to pay a rolling fee to SSGC. FFBL will also request capacity allocation from SSGC as per Third Party Access to Natural Gas Rules 2018 and Network Code.
Subject to the availability of sufficient gas volumes, SSGC will continue to supply up to 40 mmcfd in addition to the 15 mmcfd from Jhim East X-1
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