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To sort out issues in the gas sector: Update regulatory changes and foreign investment

The policy for oil and gas exploration & production could be described as confused at best. Although the government has eliminated the quota system and is preparing a draft in order to separate the functions of policymaking, regulation and administration of the exploration and production (E&P) sector, still it would be an uphill task to streamline the policies and procedures prevalent since last few decades. Simplification and elimination of redundant steps for getting approval to start drilling activities in potential areas will attract further investment.

The petroleum sector has been divided into five key areas, which included oil and gas, E&P, refining and marketing, pipelines and gas distribution, liquefied petroleum gas (LPG) and liquefied natural gas (LNG). Oil and gas exploration and production companies could not find any major exploration site since long and the country’s existing hydrocarbon reserves are depleting gradually. In this situation, the importance of imported LNG, Liquefied Petroleum Gas (LPG) and trans-country gas pipeline projects with Turkmenistan, Russia and Iran could not be emphasized further. The government had decided to encourage the private sector to make investment in the LNG sector.

The Petroleum Division of Energy Ministry is working on a strategy to further add around 400 million cubic feet per day (MMCFD) Liquefied Natural Gas (LNG) in distribution network of the two state companies, SNGPL and SSGC, by end of this year. Currently, around 1200 MMCFD LNG was being added in the distribution network to meet the country’s energy needs. The capacity of Floating Storage and Re-gasification Units (FSRUs) is also being increased. Pakistan’s two LNG terminals currently have 1.2 billion cubic feet per day of capacity, and a third expected to come on line next year will add 600 million cubic feet per day.

 

Pakistan is chronically short of gas for power production and to supply manufacturers such as fertilizer makers, crippling the country’s economy. Five groups selected to build LNG terminals are Tabeer Energy, a unit of Mitsubishi Corp; Exxon and Energas; Trafigura Group and Pakistan GasPort; Shell and Engro Corp; and Gunvor Group and Fatima which aims to triple imports and ease gas shortage. The terminals could be in operation within two to three years. Since LNG was introduced in the country, Pakistan has imported over 19 million tons of LNG and saved about $5 billion, because LNG replaced the import of more expensive furnace oil. Pakistan has reduced its gas deficit, revived the CNG sector so people no longer face long queues at CNG stations to fill gas in their cars, revived the fertilizer sector where Pakistan went from importing one million tons of urea to being an exporter of urea, and revived more than 500 industrial units because gas availability to industry is now uninterrupted. With LNG, Pakistan’s households no longer face winter gas load-shedding as there is now swapping between LNG and domestic gas with no price increase.

Pakistan holds considerable natural gas reserves, around 105 TCF, according to US Energy Information Administration data. But companies in the country face significant challenges to develop these resources because of complex geography, environmental constraints and low natural gas prices in Pakistan, which have been subsidized by the government for years. Another restraint for Pakistan’s gas development is that it still does not have the infrastructure in place to adequately connect supply with demand. In effect, the country needs to coordinate the timing of the investments for pipelines and future LNG regasification terminals with the growth of supplies.

Pakistan must secure energy in order to reduce power blackouts and outages that have hindered economic growth, and LNG imports provide an appealing opportunity. As such, the country’s ambitions to procure LNG is encountering headwinds from not only the ongoing corruption scandal, but the government is facing a mounting debt problem and dwindling foreign reserves, all making it harder to pay for necessary imports.

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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