LNG regulatory framework pressed to capitalise on low spot price

LAHORE: Government has embraced an opportunity in attractive spot price of liquefied natural gas (LNG) to empower the private

sector to boost import through plucking bottlenecks with a prudent regulatory framework urgently needed to meet burgeoning energy demand, stakeholders said on Wednesday.

After months of lull, the government gave a go-ahead to import of LNG through spot contract, fetching a highly competitive price of around $2.2 per million metric British thermal unit, which is far less than the locally produced natural gas. “That is an excellent development,” said a top ex-official of energy ministry. “But, additional volumes are required to reduce basket price as current mechanism doesn’t allow benefits of low price to reach end consumers. For that, federal government should consider weighted average cost of gas.”

SOCAR Trading (UK) Limited, a marketing arm of the State Oil Company of Azerbaijan Republic (SOCAR) emerged as successful technically viable bidder with 5.7395 percent of Brent, according to evaluation report of bid of Pakistan LNG Limited (PLL) for supply of LNG in late August. “Unless we are able to place regular orders and expedite work on setting up storage terminals for holding stocks, we will not be able to get benefit from such one-off deal of low price,” the former energy official said. Annual import of LNG is expected to rise to 15-30 million tons over the next four to five years, according to official estimates. Pakistan is adding at least 300,000 gas consumers every year who consume local production at cheap rates elbowing out productive sectors to rely on imports. LNG contributes 22 percent to the country’s energy mix, while its share in the country’s energy imports stands at 24 percent.

Since 2015, over 19 million tons of LNG has been imported, while two re-gasification LNG terminals are operational and several in queue.

Stakeholders said energy managers should show willingness to remove procedural delays and introduce rules and regulations for third party access of LNG terminals for utilisation of excess capacity before peak demand of LNG in next three to four months.

Commending the LNG import permission to the private sector, All Pakistan CNG Association spokesperson said it had demanded for long that the advantage of low-priced imported gas could only be reaped if its import was allowed by private buyers. He stressed the need to end monopoly of government in importing LNG. “The cost of clean fuel of LNG could be reduced drastically if the private sector is allowed to import LNG through competition,” he said. Utilities have stubbornly stuck to monopolistic role in distribution of gas mainly due to vested interests. Stakeholders said SNGPL and SSGC should only work as operator of transmission and distribution network and charge against smooth flow and delivery of gas to industrial and transport sector in addition to catering to needs of domestic and commercial consumers. Industry and CNG owners should be liberated from shackles of monopolistic energy policies and allowed to place order for LNG import, they said.

The short, medium and long-term outlook of LNG is highly positive from the point-of-view of consumers. Despite seasonal variations or other volatilities, average price of LNG will remain attractive if calculated on yearly basis. Special Assistant to the Prime Minister on Petroleum Nadeem Babar was upbeat on recent approval to third-party access for LNG imports as he thinks such initiative would help increase volume of LNG import. In the backdrop of resuming LNG purchases on spot rates with approval of lowest bids on July 28 by PLL, the importance of practically widening this window becomes more obvious. To make it possible as early as possible, we only need innovative approach as infrastructure and guaranteed buying is already there. The imports will help in meeting energy demand expected to increase with gradual opening of business and industrial activities following significant reduction in Covid19. The CNG, power and industrial sectors will be able to receive much-needed supplies in the run-up to early-winter high-demand months. The ex-official of energy ministry expressed concern over low participation by bidders in PLL tender. The condition of change in quality of gas reduced prospects of participation by greater number of bidders as supplies are limited to fewer facilities but given availability of volumes Pakistan has benefited significantly. Energy managers should now plan on issuing tender for cargo of Pakistan State Oil from Swiss commodity trading group Gunvor for 5-year contract expiring in few months with a built-in clause to add the second tender cargo of Gunvor as well whose contract is expiring in about 18 months.