LIQUEFIED NATURAL GAS

S.M.ABBAS ZAIDI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Sep 27 - Oct 3, 2010

LNG offers an energy density comparable to gasoline and diesel fuels and produces less pollution, but its relatively high cost of production and the need to store it in expensive cryogenic tanks have prevented its widespread use in commercial applications. It can be used in natural gas vehicles, although it is more common to design vehicles to use compressed natural gas.

The government of Pakistan is encouraging LNG import by the private sector. Accordingly, Pakistan Mashal LNG Project (PMLP) was conceived to cater for the energy needs of the country as envisioned in the 25 year National Energy Security Plan and identified in the Energy Gap Coverage Strategy.

PMLP is to be set up on an integrated basis whereby a private sector project developer will manage the entire supply chain including procurement and shipping of 3.5 million tonnes per annum LNG, construction and operation of an onshore LNG receiving terminal, and delivery of 500 MMCFD regasified LNG to the SSGC's system in Karachi. Mashal (Phase-I) will be based on Floating Storage and Regasification Unit (FSRU).

CURRENT PROJECTS

Pakistan's gas demand and supply projections indicate a widening gap of approximately 500 MMCFD by the year 2010. The gap starts to emerge in 2007-08 and builds up to 2100 MMCFD by 2015, as the current gas fields gradually go off plateau. Any commitment of additional gas supplies to industries, power or fertiliser plants on a long term basis are therefore not possible, without confirmation of additional sources of gas supply. This may be possible through an import gas pipeline, which at the earliest might come on stream by 2015 as per gap coverage strategy or a major on-shore/off-shore gas field discovery in the current year (the gas to market period being 5 years). A third alternate is the LNG import option, which by current assessment will be able to provide gas by the year 2010-11.

To this end, GOP has nominated SSGC as the project facilitator for the establishment of 3.5 million tons per annum (mtpa) (equivalent to 500 MMCFD of gas) LNG import project with a re-gasification facility to be located in the vicinity of Karachi.

To date, SSGC has completed a prefeasibility study covering business, technical, commercial, legal, and other issues concerning LNG import, and has also provided input on Pakistan's LNG Policy (including an LNG Policy Workshop). SSGC has conducted prequalification of interested project developers, and has issued formal Request for Proposals. Proposals (Technical/Commercial/Price) have been received and evaluated. A letter of support has been issued to one of the potential project developers to progress formal project award.

Another Liquefied Natural Gas terminal in Gawadar is also planned. The estimated cost of Pakistan segment is $1.2 billion to be incurred over a four-year period. The project is planned to be funded at a debt-equity ratio of 70:30 requiring an equity investment of $373 million and debt financing of $872 million.

The project's debt portion was expected to be secured from a combination of domestic and international financiers including Sindh and Balochistan governments, SSGC, SNGPL, OGDCL, PPL, Parco and NBP whose contribution will be $190 million or 51 per cent of equity structure as well as potential private investors including Petronas and Gazprom contributions will be $183 million or 49 per cent of the equity structure.

NATURAL GAS

The importance of natural gas to the country has been increasing rapidly. As on Jan 1st, 2010, the balance recoverable natural gas reserves have been estimated at 28.33 trillion cubic feet. The average production of natural gas during July-March 2009?10 was 4,048.76 million cubic feet per day (mmcfd) as against 3,986.53 (mmcfd) during the corresponding period of last year, showing an increase of 1.56 per cent. Natural gas is used in general industry to prepare consumer items, to produce cement and to generate electricity. In the form of CNG, it is used in transport sector and most importantly to manufacture fertiliser.

Currently, 28 private and public sector companies are engaged in oil and gas exploration and production activities.

The supply of gas has exhibited an increase of 1.6 per cent during July-March 2009?10. The increase in supply owes to higher production of natural gas during the period under review. Due to this increase in availability of natural gas, the overall consumption of gas remained higher during the period. Furthermore, the sector wise consumption of gas suggests that the household, commercial, fertiliser, and transport sectors witnessed growth in consumption of gas during 2008?09.

More recently, with the exception of cement and power sectors, many major sectors have witnessed growth rates during July-March FY10. The consumption of gas by industry has witnessed a significant increase of 5.3 per cent during July-March 2009?10 especially after the declined of 1.1 per cent during 2008?09. The increase in industrial consumption was attributed to rise in domestic demand for manufacturing production during the period. The maximum decline of 72.7 per cent has been witnessed in cement sector's gas consumption on the back of contraction in its external demand during the period along with the switchover to coal for production. Decline in power sector's gas consumption was because of inter-corporate circular debt issue. On the other hand, gas consumption in the transport sector increased due to shift from imported fuel oil to relatively cheaper source of gas during July-March 2009-10.

FUTURE OUTLOOK

Pakistan plans to build its first LNG receiving terminal at Port Qasim, near Karachi. In 2008, the government chose 4Gas, a Dutch-headquartered developer of LNG terminals, to build the facility. Carlyle Group and Riverstone Holdings LLC are the largest shareholders in 4Gas. 4Gas recently won the right to build a floating terminal off Karachi to store LNG supplies while it is constructing the larger receiving terminal.