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Present state of Pakistan’s natural gas sector

Natural gas is Pakistan’s primary source of energy and has committed to various pipeline and terminal projects for delivery to homes, industries and power plants. Gas makes up more than a half of the country’s energy source and it uses its natural production for domestic use, with imports of Liquefied Natural Gas (LNG) being considered to meet the supply gap. Natural gas caters for 37.68 percent of the country’s total energy supply, with a 40 percent increase in gas demand during the winter. Currently Pakistan has LNG of 4-5 million tonnes contracted and another 4-5 million within the current fiscal year. The government also wants LNG deregulated to allow the price to be set by the market. Pakistan is also about to start importing LNG from Russia to meet the needs in Punjab. The country is also importing LNG from Qatar, even as Japan and Russia, among others, are keeping an eye on the LNG purchase tender of Pakistan. Total LNG demand of Pakistan is around 30 million tonnes a year and seven LNG regasification terminals are being constructed with a 2019 completion date. The Pakistan-Iran Gas Pipeline Project is still on the books to help meet the needs for gas in Pakistan with the international sanctions against Iran halting the project.

Broadly, the domestic natural gas sector and the entire energy policy of the nation is determined and formulated by local institutional, provincial and federal entities that address issues related to energy production, consumption and distribution such as petroleum standards and gas mileage. The Ministry of Water and Power is also responsible, among other things, for formulating policy and liaising with other provincial government entities on energy-related issues. Pakistan’s oil and gas sector is highly complex, rapidly changing and extensively regulated. Gas and oil industry activities are regulated and administered via the Directorate General of Petroleum Concessions (DGPC), the Ministry of Petroleum and Natural Resources’ Policy Wing.

All activities relating to the development, exploration, distribution and transmission of gas are regulated by the Oil and Gas Regulatory Authority (OGRA). Sui Southern Gas Company Limited (SSGCL) and Sui Northern Gas Pipelines Limited (SNGPL) control and own all the natural gas distribution networks and associated infrastructure. The main business of the two state-owned companies is the purchase of natural gas in large quantities from energy and petroleum companies and distributing it across load centres through a high-pressure system of transmission for sale to industrial, commercial and domestic customers via its network of supply.

To derive value from natural gas production, a regulatory mechanism has been established with laws providing for extraction, production, distribution and consumption of gas and other petroleum products. The laws define the model agreements amongst all stakeholders, liabilities, rights, taxation and fiscal arrangement among other provisions for investors and government to maximize returns from exploitation of the resource.

 

All natural gas transportation pipelines and associated infrastructure are owned by the two state utilities, SSGCL and SNGPL. In principle a foreign company could acquire a stake in them through the purchase of shares on the stock exchange. Foreign companies not operating in Pakistan but having operated concessions in other geographical areas of the world can only be eligible to acquire petroleum rights subject to their financial and technical capabilities.

Currently, Elengy Terminal remains Pakistan’s single terminal for the regasification of 400-450mmcf/d of LNG imports, mostly from Qatar. Five more terminals are being proposed for construction at Karachi and Gwadar ports for the processing, treatment, storage, regasification and handling of 3,000mmcf/d of LNG by end 2018. In anticipation of these LNG imports the government of Pakistan has following policies and rules in place:

  • Liquefied Natural Gas Policy 2006 (updated through the Liquefied Natural Gas Policy 2011); and
  • Oil and Gas Authority LNG Rules 2007 (LNG Rules).

In Pakistan, cross-border sales and deliveries of natural gas are transacted pursuant to bilateral agreements between the parties and the availability of cross-border capacity. Since 2015, importing natural gas has been a high priority of Pakistan based on the energy crisis in Pakistan. However, Pakistan is a signatory to a framework agreement between Turkmenistan and Afghanistan, which envisages import of gas through a 1,680km-long pipeline through Turkmenistan and Afghanistan. Furthermore, Pakistan has signed a memorandum of understanding with Qatar and Iran for importation of gas through pipelines.

In light of the above the Government of Pakistan has incorporated Inter-State Gas Systems (Private) Limited (a joint venture between SSGCL and SNGPL) to work as an interface between the government and external agencies to facilitate the import of natural gas.

The writer is a Karachi-based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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