Pakistan annually saves Rs17bln in LNG tolling tariffs

LAHORE: Pakistan annually saves at least $147 million or Rs17 billion on account of liquefied natural gas (LNG) tolling fee to a single terminal operator if compared with an average rate being charged on similar infrastructure in India, data analysis showed on Monday.

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The average annual levelised tolling charges of two LNG terminals are lower 50 percent or Rs17.65 billion, 70 percent or Rs34.87 billion and 83 percent or Rs65.86 than the similar charges being applied in India, China and Indonesia, respectively, the industry data showed.

“In an era of severe financial crunch, saving of $147 million or Rs17 billion means a lot in terms of cost savings,” an industry official said.

Comparative analysis of tolling tariffs being applied in the world indicate that the terminal’s tolling tariffs in Pakistan have been one of the most competitive in the world by any mean.

Against an average tolling fee of around $0.44 / million British thermal units (MMBtu) being charged in Pakistan, similar average charges of all terminals in India stood at $0.9 / MMBtu as of 2016 India, $1.5 to $2 / MMBtu in China, and $1.5 to $2.58 / MMBtu in Indonesia.

Even average levelised tolling tariff of Pakistan is lower by about five percent if compared with $0.47 / MMBtu in Bangladesh, having the status of least developed country.

The LNG tolling tariff of $0.66 / MMBtu for the first terminal built in 2015 was obtained through a competitive bidding process. The tariff was already one of the lowest for an LNG floating storage and regasification unit in the world. It was further revised downward to $0.44 / MMBtu with expansion in regasification capacity.

Further, the government required no investment on such infrastructure. In other words, the government did not spend a single penny on new LNG import infrastructure being used by the public sector as no upfront payment was made to the bidder for construction of the LNG terminal.

Consistent with international experience seen in new emerging LNG markets, the public-private partnership-based approach was proved successful for tolling model of LNG terminals. Under the arrangements, an LNG terminal company provides regasification services for a fee as part of a terminal use agreement with the toller or an aggregator. LNG procurement via an LNG sales-purchase agreement and the sale of natural gas is managed / handled by the aggregator.

The model saves precious time in implantation of project as Pakistan is facing an urgent need to solve domestic gas shortages, with upstream gas only able to support hardly four billion cubic feet per day (bcfd) gas supply against a demand of 6 bcfd.

In Pakistan, an unbundled approach to LNG was used, separating the LNG terminal operations from the LNG supply for avoiding any future complexities in cash flow. Under such an enabling environment, Engro’s has been able to set up the country’s first LNG terminal on fast track bases by commissioning infrastructure on 28 March 2015, in only 335 days, and within the committed time line. Since then, the project has alone imported over 8 million tons of LNG, reducing the country’s gas deficit by an estimated 20 to 25 percent.

The maiden LNG development at Port Qasim having capacity of 4.5 million tons per annum was subsequently expanded by a further floating storage and regasification unit at the same location in 2018, which was set up by Pakistan GasPort Limited.

LNG import terminals have helped in narrowing gap between demand and supply of natural gas, and provide cheap alternate source of energy. Pakistan has saved approximately $5 billion replacing the other more expensive fuels since the start of LNG imports.

The LNG import has also revived the fertiliser and compressed natural gas sectors, and 500 plus industrial units by ensuring consistent supply of gas via LNG import. Parts of Punjab could face higher gas shortage if there were no LNG in the system. Pakistan has to date imported approximately 10 million tons of LNG since 2015.