Gas crisis looms as $1 billion diverted to domestic sector

Islamabad:

The natural gas sector is bracing for another hit as about $1 billion is earmarked to divert expensive RLNG to the domestic sector in a bid to ease a gas crisis expected in the 2024-25 financial year.

The state-owned oil and gas entities are already under the burden of a revolving debt of Rs 710 billion, mainly due to the RLNG supply.

Pakistan LNG Limited (PLL) is saddled with a revolving debt of Rs 142 billion, while Pakistan State Oil (PSO) faces Rs 568 billion, all from supplying RLNG to state gas utilities.

The revelation comes from key stakeholders, the North Pakistan Textile Mills Association, who claim that the diversion of RLNG to domestic consumers is poised to incur a staggering cost of $1 billion in FY 24-25, equivalent to 209 MMCFD (million cubic feet per day).

Utility company SNGPL had envisaged diversion of 80,155 BBTU RLNG to system gas consumers in FY 2024-25 at a cost of Rs 297,913 million, which amounted to $1 billion, was approved by the ECC and endorsed by the federal cabinet.

Revolving debt at RLNG continued to rise due to non-implementation of weighted average cost of natural gas.

The PTI government had passed a weighted average gas cost bill in parliament, but it was challenged in the Sindh High Court.

The oil and gas regulatory authority (Ogra) has partially implemented the weighted average cost of natural gas, but it has not been fully implemented. Therefore, a billion dollars will either be recovered from consumers or parked in cyclical debt.

SNGPL is seeking a massive hike in gas prices to be implemented from July 1, 2024. Ogra will hold a public hearing on Monday to consider the hike in gas prices.

Also read: APTMA wants deregulation of the natural gas market

A textile industry body-APTMA in its comments submitted to Ogra said gas prices rose again to Rs 2,750/MMBtu—a 223% increase from January 2023.

The petitioner has projected an overall average prescribed price (Rs/MMBtu) of Rs 4,446.89, with the price for all consumers being Rs 4,501.33, with effect from July 1, 2024.

He said grid electricity rates are around 17.5 cents/kWh and rising with no end in sight.

Therefore, there is no economically viable source of energy for companies to manufacture and be able to compete in international markets,” the textile industry said, adding that tariffs in Pakistan are among the highest in the region.

However, these increased tariffs pose significant risks to national security by hindering industrial growth, reducing competitiveness and increasing dependence on imports and aid,” the weavers said.

Especially for manufacturing, which relies heavily on energy, rising operating costs due to high tariffs result in higher consumer prices and fuel deindustrialization.

Sectors such as textiles face increasing challenges, with increased electricity and natural gas prices affecting both production costs and consumer prices. The practice of cross-subsidizing natural gas and electricity for the domestic sector at the expense of industries compounds the problem.

To maintain optimal tariffs, the federal government should link the industrial tariffs to the set price of OGRA, thereby setting a benchmark and insulating the tariffs from inefficiencies in the power sector,” the weavers added.

LPG Air Mix, priced at approximately $33 per MMBtu, is sold as natural gas (SNG) at domestic PNG consumer prices, resulting in a significant shortfall crossed by industrial consumers.

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However, the high initial infrastructure investment may not be recoverable through sales, and ongoing depreciation and maintenance costs further burden industrial consumers.

Domestic sector consumption in both networks Sui Southern Gas Company Ltd. (SNGPL) increased by more than 4%, from 310 BCF in 2022 to 323 BCF in 2023 on higher UFG rates and service costs.

The report mentions an expected further decline of 12% in SNGPL’s domestic gas production with increased sales in the domestic sector.

Only 28% of the country’s population is served by natural gas, both domestic and imported, with a diversion of over 200 MMCFD RLNG valued at $1 billion.

The efficiency of gas appliances in Pakistan’s domestic sector is one of the lowest globally, wasting scarce resources for decades at $1-3 per MMBtu.

A commitment to $11.7 remains a key issue, adding economic value to natural gas and boosting exports,” Millers said, noting that the natural gas sector faces many challenges, including high natural gas (UFG) prices, inadequate infrastructure and inefficient use of gas appliances. in the domestic sector.

Market deregulation can enhance competition and innovation, while administrative prices set by the federal government should be reviewed to prevent rent-seeking behavior and ensure efficient allocation of resources,” the weavers said.

Addressing Pakistan’s energy tariff challenges requires a multi-pronged approach, including tariff rationalization, promotion of alternative energy sources and gas sector reforms. By implementing these measures, Pakistan can achieve a more sustainable and efficient energy ecosystem while enhancing economic growth and competitiveness,” APTMA added.