IS GOVERNMENT DISCOURAGING CNG USE?

S.K.ANSARI (CHEMICAL ENGINEER)
SEEMA ANSARI (TELECOM ENGINEER)
(feedback@pgeconomist.com)

Apr
5 - 11, 2010

Oil and Gas Regulatory Authority (OGRA) notified recently to increase 18 percent tariffs of natural gas, which is Pakistan's domestic source of energy. The increment would be applicable on domestic, commercial, industrial consumers, CNG stations, power stations, cement factories, fertilizers, independent power producers, and captive power plants.

This increase in gas prices announced by the government would cast devastating repercussions for the national economy and oust the export-oriented industries from the international export market. Therefore it would be wiser if the hike in gas tariff should be withdrawn to save the Pakistanís economy and control inflationary pressures.

The IMF also has raised its concern over the possibility of inflationary rebound risks. Islamabad's economic managers revised upward inflationary target to 11 per cent against the earlier envisaged annual target of 9 per cent.

Qatar LNG and Gas-to-Liquid (GTL) forecast to grow by 16 per cent next year, is one of the few sectors in the world that will enjoy double-digit growth in 2010. But, 2010 is not just about the growth. During this year the delivering was promised on the past basis and since for the last five year the country (Qatar) embarked on an aggressive programme to become the world's largest exporter of LNG and GTL production. These two projects are few of the world's giant energy projects.

Qatar LNG and GTL are coming to end on the three new LNG trains at Ras Laffan that will lift peak production to 77 million tones a year.

The Global Market for LNG is becoming weaker which will be a major obstacle for Qatar to overcome in the coming year.

INTERNATIONAL GAS TARIFF

Currently the gas prices in Asia have fallen to about US$8 a million Btu from US$16 a million Btu from the last year. US prices are even lower to US$6 a million Btu and expected to be lowered in the current year.

Gas tariff all over the world are lowering because they are finding out the different substitute to overcome the gas hike inflation but in Pakistan we are away from substituting the energy with compromising with high inflation. The current local gas tariffs are more than international tariff.

- International Gas tariff is US$ 8/million Btu or in PKR704/million Btu (US$ = Rs.88)

- Compare the international gas tariff Rs704/MMBtu with local tariff Rs 9,967.34/MMBtu.

Supply and Demand gas existed much before 1986, but no action has been taken to increase energy production and set up other renewable energy to meet these challenges.

Primary commercial energy supplies increased 3.8 per cent to 62.9 million tones of oil equivalent (mtoe) in 2007-08 from 60.6 mtoe in 2006-07. The growth rate has decreased slightly from 4.4 per cent last year. The share of natural gas in primary energy supplies during 2007-08 was 47.5 per cent followed by oil 30.5 per cent, hydroelectricity 10.9 per cent, coal 9.2 per cent, nuclear electricity 1.2 per cent, LPG 0.7 per cent and imported electricity 0.1 per cent.

Natural gas is cheaper by 30 per cent as compared to electricity. In addition to heating homes, natural gas can also be used to help cool houses, through natural gas powered air conditioning. Natural gas air conditioning provided most of the air conditioning requirements of the 1940's and 50's. However, due to new advancements in technology and efficiency, natural gas air conditioning is getting popular. Although natural gas air conditioner units are initially more expensive than a comparable electric unit, they are considerably more efficient and require less maintenance. Modern residential air conditioner units use close to 30 per cent less energy than in years past, and have an expected working life of 20 years with very little maintenance.

Natural gas appliances are also rising in popularity due to their efficiency and cost effectiveness. Although many gas powered appliances are initially more expensive than their electric counterparts, they are commonly much cheaper to operate, have a longer expected life, and require relatively low maintenance. Some examples of other natural gas appliances include space heaters, clothes dryers, pool and Jacuzzi heaters, fireplaces, barbecues, garage heaters, and outdoor lights. All of these appliances offer a safe, efficient, and economical alternative to electricity or other fuel sources.

Almost 70 per cent of new homes use natural gas for space heating, meaning that a large portion of new homes already have the natural gas delivery infrastructure in place. Although natural gas has many uses, and can supply energy to a vast number of residential appliances, there are some energy requirements around the house which cannot be satisfied by natural gas. A television, or blender, or microwave, for instance, will likely never be powered directly by natural gas. However, natural gas can still provide energy for these appliances at the home, by what is known as 'distributed generation'.

Distributed generation refers to using natural gas to generate electricity right on the doorstep (natural gas generator). Natural gas fuel cells and micro-turbines both offer the residential consumer the capacity to disconnect from their local electric distributor, and generate just enough electricity to meet their needs. Although this technology is still in its infancy, it is very promising to offer independent, reliable, efficient, environmentally friendly electricity for residential needs.

The very first natural gas fuel cell was installed in a house in Latham, New York, in July 1998. The system was plugged into the home's natural gas line as the fuel supply, and is now completely independent of any outside electricity. Because a significant amount of electricity is wasted when it is distributed through power lines from a central power plant to the home, on-site electric generation could lead to significantly higher energy efficiency, which translates to cost savings for the residential consumer.

In a retail service station, natural gas is sold by mass in kilograms. With on-site fuelling, it is typically sold by volume in cubic meters or in units of energy called gigajoules. In terms of heating values 1 kilogram of natural gas is equivalent to 1.52 liters of gasoline; 1 cubic meter of natural gas is equivalent to 1.09 liters of gasoline; and 1 gigajoule of natural gas is equivalent to 28.85 liters of gasoline.

- One gallon (3.78 liter/gal) contains 114,100 Btu/unit

Natural gas, as it is used by consumers, is much different from the natural gas that is brought from underground up to the wellhead. The processing of natural gas is in many ways less complicated than the processing and refining of crude oil.

Raw natural gas comes from three types of wells: oil wells, gas wells, and condensate wells. Natural gas that comes from oil wells is typically termed 'associated gas'. This gas is separated from oil in the formation (free gas), or dissolved in the crude oil (dissolved gas). Natural gas from gas and condensate wells, in which there is little or no crude oil, is termed 'non-associated gas'. Gas wells typically produce raw natural gas by itself, while condensate wells produce free natural gas along with a semi-liquid hydrocarbon condensate. Whatever the source of the natural gas, once separated from crude oil (if present) it commonly exists in mixtures with other hydrocarbons; principally ethane, propane, butane, and pentanes. In addition, raw natural gas contains water vapor, hydrogen sulfide (H2S), carbon dioxide, helium, nitrogen, and other compounds.

The federal government determines Gas Development Surcharge and after adding it in the prescribed prices, advises to OGRA for notification in the Official Gazette of Pakistan.

The federal government is always looking for opportunities to increase the utilities prices to that level which is beyond our poverty level. Very surprisingly the government imposed the Carbon tax on CNG in June 2009. Technically Natural Gas or CNG is a carbon-free environmental-friendly fuel for vehicle. During that time the increment was Rs.6/kg in CNG price which was also slapped at an average rate of Rs.5 - 6 per liter in order to replace the existing petroleum development levy (PDL). The rate of carbon tax will be flexible which can be changed in case of fluctuation in price of POL products in the international market. The government was also intended to move towards imposing GST on services at a rate of 5 to 8 percent in the next budget.

The Oil Marketing Companies (OMCs) imported 96,001 tons of petrol in Dec 2009 as against 25,668 tons in Dec 2008. Due to CNG shortfall the OMCs imported another cargo of 32,000 tons in January this year. The CNG load curtailment in Punjab was one of the reasons for raising the petrol demand in the country.

Recently increase in CNG price up to Rs8 per kg shows that the government wants to discourage commuters from using CNG as fuel. The government also wants to reduce numbers of CNG stations to direct gas to industries. This decision would be finalized only after taking the stakeholders in confidence, including CNG dealers. Meanwhile it was also reported in the national press and electronic media on August 30th, 2009 that both SSGC and SNGC requested OGRA to consider permanent ban on use of CNG on vehicles. Private sector has invested over Rs170 billion in the CNG sector. According to different reports, around 2.4 million vehicles have been converted to CNG and more than 2500 stations are on ground all over Pakistan. It is again highly surprising news that the government has inducted 1600 CNG buses with a cost of Rs300 million for Karachi to facilitate the people to commute in CNG buses. This is really beyond our understanding on one hand government seems to discourage CNG use and it is planning a burden on overloaded gas supplies on the other.

The government is planning to set up bus CNG station at Karachi with a cost of Rs150.6 million. This CNG station would be equipped with around 4000 to 4500 cu.meters per hour compression capacity with six mass flow dual hose dispensing units with two compressors around 2000 cu. Meters/hour capacity to refuel twelve buses at a time.

CNG sector forms eight per cent of the total consumption of natural gas, whereas the domestic sector consumes 22 per cent gas during summer which rises to almost 65 per cent during the winter. Gas geysers and heaters, which employ primitive technology and waste a lot of natural gas, are used non-stop round the clock.

This project was approved by the federal cabinet with the summary initiated by Ministry of Petroleum and Natural Resources mentioning to replace the diesel fuel for the buses, mini-buses and other related vehicles.

According to the 2008-BP Statistical Energy Survey, Pakistan had in 2007 proven natural gas reserves of 0.85 trillion cubic metres, with the major gas-producing fields being Sui in Balochistan and Mari in Sindh. It reported production of 30.8 billion cubic metres and consumption of 30.8 billion cubic metres.

RANK COUNTRY NATURAL GAS PROVED RESERVES (CU M)
1 Russia 47,570,000,000,000
2 Iran 26,370,000,000,000
3 Qatar 25,790,000,000,000
4 Saudi Arabia 6,568,000,000,000
5 United Arab Emirates 5,823,000,000,000
6 United States 5,551,000,000,000
7 Nigeria 5,015,000,000,000
24 India 1,056,000,000,000
27 Pakistan 764,600,000,000

Pakistanís extensive oil and gas reserves are largely located in Balochistan that makes more than 40 percent of Pakistanís land mass, possesses important reserves of oil and natural gas as well as extensive mineral resources.

According to the Oil and Gas Journal (OGJ), Pakistan had proven oil reserves of 300 million barrels, most of which are located in Balochistan. Other estimates place Balochistan oil reserves at an estimated six trillion barrels of oil reserves both on-shore and off-shore.

According to the Geological Survey of Pakistan (GSP) sources, reserves of 19 trillion cubic feet of gas and six trillion barrels of oil are estimated during the offshore exploration in Balochistan. These GSP's statistics confirm big reservoirs of oil and gas in Balochistan. Panjgur, Lasbella, Kharan, Kalat and Marri districts are also under exploration for oil and gas.