GAS DEMAND SURPASSING SUPPLY
FOCUS SHOULD BE ON CONTAINING WASTAGES AND SETTING RIGHT PRIORITIES.
Jan 10 - 16, 2011
Historically, load shedding of gas has been a normal phenomenon in Pakistan during winter. However, over the last few years not only duration of load shedding has been on the rise but also some of the sectors have become the worst victims.
It is also difficult to understand the priority assigned to some of the sectors. Increasing shortage of energy products is eroding foreign exchange reserves of the country, impacting balance of trade negatively, curtailing industrial outputs and reducing employment opportunities in the country. Lately, some precious lives were lost due to energy related violent riots in Faisalabad. It is evident that if indigenous production of energy products is not increased and arrangements for the import of gas are not made, country's GDP growth may fall to a dismal level.
GAS CONSUMPTION BY SECTOR
Pakistan has remained heavily dependent on gas for meeting its energy requirements due to disappointingly low production of oil, failure in exploiting coal reserves and growing dependence on thermal power generation. Since other types of fuels are too expensive, gas has become the only source of energy for domestic consumers. More and more gas is diverted to power plants in an attempt to bring down cost of generation. Due to load shedding of electricity industrial consumers, having captive power generation plants as well as stand-by generators, are forced to switch over to diesel for electricity production. However, the worst hit sectors have been CNG outlets and fertilizer manufacturing plants, which do not have any alternative.
It is more than evident that at present the country faces acute shortage of gas. Since supply cannot be increased overnight available options are limited to: 1) containing leakages and wastages; 2) setting priorities right; 3) running power plants on furnace oil; and 4) resolving inter corporate debt. Ironically, Pakistanis have never realized the value and importance of natural gas and felt the need to contain leakages and wastages. In fact, leakages, commonly termed UFG far exceed the permissible limit fixed by oil and gas regulatory authority (Ogra). Even disallowing UFG beyond the permissible limit, resulting in reduced profit for the gas distribution companies, has not helped in containing the leakages, mainly emancipating from depleting transmission and distribution networks. Gas marketing companies attribute this to mounting inter corporate debt and resulting liquidity constraint. Since profit of gas marketing companies is linked with net operating assets, failure in building new assets results in declining earnings for them.
DETERMINING PRIORITY SECTORS
Failure in increasing availability of gas has led to curtailing gas supply of various categories of consumers. Since meeting demand of domestic consumers, particularly during winter, is top priority the axe falls on industrial consumers, including fertilizer manufacturing companies. With crude oil hovering around US$100/barrel, the policy planners consider switching over power plants to gas from furnace oil more prudent. Beginning 2011, government has decided to suspend gas supply of fertilizer plants getting gas from Sui twins for 45 days, mainly to meet the requirements of power plants. Similarly, gas supply to textiles and clothing units has been curtailed and CNG stations are told to observe two days mandatory closure during the week.
POWER VERSUS FERTILIZER
Historically, gas supply of fertilizer units linked with Sui twins is curtailed during winter. However, instructing them to follow mandatory closure this year and even curtailing supply of units getting gas from Mari field, dedicated to fertilizer industry in Fertilizer Policy, has pushed the fertilizer industry to wall. Now fertilizer units are contemplating to file a joint petition against the government for not meeting its contractual obligations. Along with announcing gas curtailment program, government also decided to import 225,000 tons urea, which will entail paying Rs6 billion subsidies. Experts say that instead of curtailing gas supply of fertilizer plants the government should have cut supply to the generation companies running generators on furnace oil. The suggestion looks prudent keeping in view the fact that power plants can be run on alternate fuels but curtailing gas supply of fertilizer units results in import of urea costing the government almost double the price as compared to locally produced urea. Immediately after the issue of the closure/curtailment notice, Engro increased price per bag by Rs190 and other urea manufacturers followed the move.
INTENSIFYING E&P ACTIVITIES
Ideally, the government should intensify exploration and production (E&P) activities in the country by offering incentives to attract new E&P companies. However, this is a long drawn process as against the need to immediately enhance gas supply in the country. According to experts, Pakistan faces around 800mmcfd gas shortfall this winter, which can be conveniently overcome by containing UFG and resolving ongoing litigation pertaining to some of the recently discovered gas fields. Some of them go to the extent of saying that commencement of gas production from couple of newly discovered fields in Balochistan and KP provinces can yield up to 2000mmcfd gas. However, production from these fields has remained suspended due to security concerns.
Under the emerging scenario, conservation of gas and its judicious utilization in priority industries has become a must. Along with the exploration and production, activities have to be accelerated to meet the future needs of the country. Efforts should also be made to increase hydel and nuclear power generation to contain burning of gas in thermal power plants. Along with this, Thar coal should also be exploited to the maximum to further contain oil import bills.
Inter corporate debt issue must also be resolved at the earliest. Non-payment by utilities to fuel supplying companies has already plagued the entire energy chain. Now energy sector sickness is transferred to the financial sector through issue of term finance certificates. All these attempts must be frustrated to save the financials sector from becoming sick.