ISLAMABAD: The Sustainable Development Policy Institute (SDPI) has submitted its study to the Petroleum Division suggesting Jamshoro Joint Venture Limited (JJVL) LPG-NGL extraction plant should be made operational.
In its report “Indigenous LPG production: Challenges and Way Forward”, SDPI, the country’s well-known think tank, argued if Sui Southern-JJVL deal is done to operate extraction plant, it could reduce LPG imports by about 9 percent, saving $73 million annually. The plant is non-operational since June 2020.
In the meeting of Implementation Committee of SIFC on September 6, it was announced that a decision will be taken on the issue as per findings and recommendations of SDPI. The study is now lying with DG LGs in Petroleum Division.
The Petroleum Division Friday last was asked to sit with JJVL management and SSGC to thrash out an agreement to operationalise the project in the light of SDPI study.
The study shows Sui Southern Gas Company Limited (SSGC) is still estimated to earn revenue of Rs2 billion per annum if JJVL LPG extraction plant is made operational. Annual LPG import by SSGC is 170,137 metric tons worth $107 million at the cost of foreign exchange reserves mainly based on loans from friendly countries. By starting JJVL, annual saving will be $57 million. “SSGCL can reduce its vulnerability to global market fluctuations and geopolitical risks associated with importing energy resources by producing a significant portion of its LPG domestically,” the study says.
It explains the JJVL plant has the capacity to produce 91,250MT of LPG annually. If the previous 15 years’ partnership is any guide, potential revenue from LPG sales, after accounting for the cost of replacing gas shrinkage, is estimated at around Rs2 billion per year for SSGC. Net revenue for SSGCL during this partnership is projected at Rs30 billion.
“The deal ensures a reliable supply of LPG, whether through SSGCL or JJVL. Although the estimated amount of LPG extracted is only 9 percent of Pakistan’s total LPG imports in FY23, it is still critical for meeting energy needs of households and industries, particularly in regions not connected to the natural gas pipeline network,” the study argues.
The study also highlights aspects of making JJVL project operational on replacement cost with RLNG, arguing the cost difference between domestic gas and RLNG is $7.68 per mmbtu with annual cost of $28.03 million that incurred per annum. This additional cost of replacement with RLNG would need to be absorbed either by SSGCL or passed onto consumers through higher tariffs.
After JJVL operation, reduction in imports would contribute to conserving foreign exchange reserves and reducing dependency on volatile international markets. However, these savings must be weighed against the cost of RLNG imports required to replace the gas shrinkage, which could cost $28.03 million per year, the study suggests.
The net savings would be $28.97 million per year. However, this will depend on the agreed-upon formula for cost sharing, processing charges and other operational costs, the study says.
The study suggests both parties (Sui Southern and JJVL management) should go for early hearings in the court of law. The available potential for LPG and NGL should be re-assessed with fair “revenue sharing” model at (57pc:43pc).
It also recommends all regulatory compliances should be ensured and price hikes for consumers should be avoided. “SSGC should retain the ownership of hydrocarbons”, the study says. The study touches the point under consideration is to resume 8-10 mmcfd of gas supply to JJVL at a pre-agreed tariff that fully protects financial interests of SSGC.