Domestic gas supply with LNG requires huge subsidy

ISLAMABAD: Pakistan has a gas demand of approximately 5 billion cubic feet per day (bcfd) out of which approximately 3.9bcfd is being produced domestically and about 1.1bcfd is being imported as LNG. Domestic production has been declining at about 6 to 7 percent per year because no new exploration and production blocks had been awarded from 2013-2018 and the producing fields were already on decline.

The government expects to maintain the domestic production around 3.9bcfcd through removing hurdles that have been stalling increased production. The government is also preparing a policy to incentivise marginal gas fields as well as those that are at the end of life and cannot extract gas economically, in order to enhance domestic supply. At the same time the Ministry of Energy is launching tenders for new exploration and production blocks in December, but that will help in the future. Meanwhile, LNG is now consistently being imported in the range of 0.9bcfd to 1.2bcfd to supplement the domestic supply.

Domestic demand of gas goes up almost 90 percent in the SNGPL system and approximately 50 percent in the SSGC system in the three winter months. Every winter this results in shortage of gas and drop in pressure in congested urban locations or distant locations.

When asked, the Ministry of Petroleum indicated that it has done week by week planning for the next five months to ensure that there are sufficient supplies of gas for this winter. This planning is apparently done based on demand for gas provided by power sector, fertiliser sector as well as estimates of general industry. When the domestic demand increases in December to February, there will naturally be shortage of domestic gas supply, but more LNG will be available to supplement the supplies. LNG import orders have already been placed till end of December, and orders for January and February 2020 are in process.

Based on this planning, it appears that the supply situation will be better compared to many past winters. However, it must be noted that supplementing domestic supply with LNG requires a large subsidy. Domestic gas cost is Rs738/mmbtu and LNG is almost Rs1,600/mmbtu (million million British thermal unit). Almost 90% of domestic customers pay less than the cost of domestic gas with more than 50 percent domestic customers paying Rs300/mmbtu or less. For longer term, the solution is to enhance domestic production and to reduce subsidy to domestic users. Meanwhile, better supply will be welcome by customers and for the first time we may have a winter without gas loadshedding.