SYNTHETIC NATURAL GAS PROJECT IN THE PIPELINE

SK ANSARI
SEEMA ANSARI
(feedback@pgeconomist.com)
June 28 - July 04, 20
10

The government is planning to produce Synthetic Natural Gas (SNG). 100 mmcfd will be inducted into a system of Sui Southern Gas Company Limited (SSGC).

WHAT IS SYNTHETIC NATURAL GAS (SNG)?

Propane-air also called LPG-Air or SNG is essentially synthetic natural gas that is formed by mixing vaporized propane or LPG with air. Once mixed it forms a homogeneous mixture that can be used as a direct replacement for natural gas in combustion applications. The only restrictions are those processes using natural gas that are intolerant of any nitrogen such as hydrogen atmosphere generators.

Companies in most industries require a backup system for their primary energy sources when there is a risk of energy interruption or when there is a significant economic benefit.

Fuel interruption halts mass production and as a result major economic losses are incurred. In some cases, as it is in the power generation, glass industry or many industries depend on natural gas can be substituted with SNG.

Propane-air backup systems allow companies to benefit from interruptible natural gas rates while relying on environmentally clean fuel sources.

Propane-Air standby systems allow natural gas users the ability to have live backup whenever required. Unlike diesel, fuel oil or propane, SNG does not require additional gas trains, piping, regulators, or special fuel delivery systems inside the factory.

A typical propane-air peak consists of LPG storage facilities, truck unloading station, transfer pumps, propane vaporizers, air compressors, propane-air mixer, gas flow rate and calorific value measurement device, and system controls. In most cases the differential in initial capital investment is so extreme that propane-air system are favored.

VOLATILITY OF PROPANE (LPG)

Liquefied petroleum gases are graded primarily with respect to vapor pressure and the temperature at which 90 percent is evaporated.

During Gulf War, it was actually experienced that the amount of import of LPG decreased greatly since import from Iraq and Kuwait was forbidden. Moreover, the production and supply of LPG are controlled by the degree of production of crude oil for the production of LPG in the Middle East through the separation from the crude oil associated gas. A decrease in crude oil production in Saudi Arabia and other countries restrict the supply of LPG.

In Pakistan the importing of LPG has never been consistent. Singapore-based Petrosin was planning to invest Rs8 billion to build storage tanks and dispensers at 200 fuel stations of the PSO in the next two year. The CNG business is no longer viable as every time in winter there is a gas shortage.

In Pakistan LPG is widely used by auto rickshaws, four wheel taxis and Suzuki pickups. The entire retail sale to these vehicles is done through decanters, which are in violation of Ogra regulations. Petrosin was planning to supply 1,500 to 2,000 tons to PSO daily. The PSO will earn a margin of Rs7 per kg on sale of LPG. This margin, which is high compared with sale of other petroleum products, is bound to add to state-run the company's profitability.

In February 2010, around 9,730 metric tones of LPG of six million dollars were imported. This was 1,580 metric tones higher as compared to the same period last year. This shows that LPG consumption is increasing every day. At least 2100 metric tones of LPG are being consumed every day in the country and only 1,400 metric tones of LPG are being produced domestically.

Currently, due to financial crunch local refineries have reduced LPG production. Comparing the local LPG prices with the international prices and the weak Pakistan's currency against US Dollar, the local prices of LPG have appreciated significantly. Moreover, LPG prices at the consumer end are highly volatile and imports become a costly proposition.

LPG DISTRIBUTING SYSTEM IN PAKISTAN

There are more than 84 distributing companies which meet the requirements of household (domestic), commercial, and automotive. Approximately 75 per cent of LPG is consumed by auto sector.

LPG use in the organised auto sector will help augment the energy mix of the country and will make imports feasible. Distribution system of LPG must be changed and decanting should be avoided to make the LPG more safe and convenient fuel.

Pakistan is in the grip of worst energy crisis because of mainly power generation unit are running with minimum stock of furnace oil due to non-clearance of inter-corporate debts.

The cash flow position of oil importing companies is deteriorated owing to their unchanged receivables and they are unable to import oil to meet the demand of power sector. This financial crunch led them to near default.

PSO requested the Finance Ministry to release Rs70 billion to avert financial crisis. Ministry of Petroleum and Natural Resources assured to solve the issue of circular debt on permanent basis in a very near future.

Pepco does not foot its bill to PSO out of its collection from consumers. This is a serious concern for PSO that despite substantial increase in tariff, power sector is unable to pay even current supplies. PSO is paid only when GoP injects cash into power sector, which is not a sustainable situation.

Pepco had failed to pay over Rs69 billion to Pakistan Sate Oil (PSO), and owing to this PSO failed to pay Rs60 billion to refineries which are on the verge of default and had no more cash to import crude oil.

Ministry of Finance bailed out Pepco twice by erasing the circular debt through marketing of terms finance certificates (TFCs). The ministry generated over Rs85 billion to end the circular debt once for all, but the incompetence of Pepco in ensuring the efficient recovery of revenue has again exposed the whole power sector to circular debt amounting to Rs70 to Rs90 billion.

The Ministry would recommend to Prime Minister to ask Pepco to come out of slackness and recover its dues from government departments, as Pepco always depends and looks towards the ministry of finance for help to pay dues to PSO. This is unfortunate state of affairs. Now this time Pepco would face the music for its incompetence.

Pepco should take its dues of over Rs19 billion from Sindh government and Rs44 billion from KESC and should not remain in 'comfort zone'. On the other hand the refineries also informed the government that they would not be able to get more loans to continue their functions, as their all borrowing limits have been exhausted.

Now it is time to think for the nation that what will be the future for those who are paying their electricity bill regularly but are suffering because of inefficiency of power sector.

The sources in the refineries said that their capacity to import crude oil has dwindled to almost zero and in case the government fails to pay their dues, then the government's sovereign guarantee would be required to restore the import of crude oil. All refineries are utilising fifty per cent of their capacities.

ENERGY'S SECTOR

The power sector in Pakistan is a mix of hydel and thermal units dominated by two vertically integrated (in generation, transmission and distribution) public sector utilities: Water and Power Development Authority (Wapda) and Karachi Electric Supply Corporation (KESC). In addition, there are two nuclear power plants Kanupp and Chanupp, and a number of independent power producers (IPPs) and small power producers (SPPs) have been established since 1994. In June 2004, the total installed capacity in the country was 19522 MW.

POWER COMPANIES TOTAL MW PERCENTAGE
WAPDA 11,297 58%
KESC 1,756 9%
Independent Power Plant 6,007 31%
Nuclear 462 2%
Total 19,522 .

The average electricity tariff in 2005 was Rs2.70/unit as compared to today's price which is more than Rs15/unit with an inflation rate 550 per cent. Limited progress has been made in reducing cross-subsidies. The largest percentage increase in the revenue collected per kWh occurred in the agriculture sector, followed by the domestic sector. The revenues collected in these two sectors are still considerably lower than for other consumers, and less than one half of those for commercial users. While tariff charged to the domestic consumers is cross-subsidised from industrial and commercial consumers, the share of electricity sold to domestic consumers has increased from 31.6 percent in 1988-89 to 43.6 percent in 2004-05. This subsidized category has created an additional burden on the financial position of public utilities.