LNG PROJECTS SEE DAYLIGHT

TARIQ AHMED SAEEDI
(feedback@pgeconomist.com)

Feb 6 - 12, 20
12

Natural gas accounts for half of energy supplies in Pakistan. With growing energy demand and depleting local gas reserves, the country needs to go for importation of gas from other countries. Imported liquefied natural gas (LNG) is one such possible substitute of local gas resource that can bridge the demand and supply gap to an extent. The government of Pakistan had introduced back in 2005 the idea of setting up integrated LNG supply and re-gasification project namely Mashal Project, which has an estimated cost of $20 billion.

For some unknown reasons, the government is said to have shelved the mega project following the Supreme Court's order to the government to ensure transparency in selecting third parties and assigning contracts.

While the big investors are still perhaps drooling over the mega project that would make the terminal operator the LNG bellwether in the country, private companies are finding it opportune to lay hands on the construction licences. Media reports said the works on transmission infrastructure at Port Qasim Authority (PQA) that would be the landing port for gas parcels, are underway.

The government has reached agreements so far with three terminal operators for importation of reportedly 400 to 500 million cubic feet per day of LNG apiece. The per day handling volume of one terminal will be sufficient to generate 2,500 megawatts of electricity.

U.S. based Overseas Private Investment Corporation agreed last year to complete the project by this yearend. Besides, construction licences have been granted to Turkish Global Energy Holding and Engro Corporation. Total cost of constructions is estimated at $500 million.

With some valid arguments, the government is deemed to have woken up and smelt the coffee. Government opponents familiar to the inside developments gathered courage to call a spade a spade. Talking to this scribe, one of them appreciated the government's positive efforts towards resolving the energy crisis. It is another thing that solutions are not popping up, he commented.

The government has formulated LNG Policy 2011 to encourage investments in imports of the gas, its regasification and transmission. Business community welcomed the new policy document with open heart saying this would help the country in overcoming energy crisis.

Textile industry that is badly hit by the gas shortages saw the proposal as requiem to energy disaster. All Pakistan textile mills association (APTMA) pinned hope to the policy as its senior official said in the media that the policy would bring to an end 500mmcfd gas shortage. However, he stressed on the implementation and fast materialization of LNG import projects to meet the energy shortfall in the coming years.

The government has amended LNG policy 2006 to speed up execution of LNG projects. The current LNG policy covers different areas from project structure, procurement, ownership and operation, marketing and transportation, regulatory framework, incentives, and pricing to mandatory permit and licenses.

The objectives of the policy include a) optimization of the primary energy mix, b) maximum utilization of local energy resources, c) encouraging private sector participation, d) establishing energy infrastructure, and e) human resource development in relation to the technical skills.

As per the policy document, a government designated LNG supplier is entitled to import the gas directly under gas-sale purchase agreement. However, LNG buyer/developer must possess commercial/technical expertise and show ability to resell re-gasified LNG.

A series of fiscal incentives are offered to the importers. For example, imported LNG will be exempted from custom duty and importers from withholding tax at import stage. Tax benefits will be for machineries/plants to be imported.

The government will also facilitate investors/buyers to obtain suitable land (on or offshore) for terminal operation at reasonable cost. "RLNG can be procured by private sector, public sector, or in public-private partnership based on lowest price demonstrable to the regulator."

Experts have reservations about the last point saying freedom given to private sector to sell RLNG directly to public or dispose off purchased gas can lead to excessive commercialization since the gas then has to be sold only to the profitable sector or clients who will have sufficient consumption needs. General public in that case may be deprived of the new bounty and beneficiaries would be third party/buyer and IPPs/captive power plants, they opined.

At international front, oil and gas scenario is unwelcome too with both importers and exporters fearing partial or full closure of Strait of Hormuz that sees 33 per cent of global LNG parcels and crude passing through it.

Iran's possible adventure is a point of concern for not only the Gulf region that possesses 47 per cent of the world's proven oil and gas reserves and is dependent on only one seaborne route for oil transportation, but also China (beside Europe and U.S.), which imports half of its crude from Middle East.

The economic behemoth cannot sustain the interruption in supplies. Strait of Hormuz witnessed 17 million barrels per day of crude transportation in 2011.

"When one looks to the LNG market in the event of a blockage, options are much more limited than for oil because LNG cannot be piped via alternative routes," Badr Jafar, President of Crescent Petroleum told AMEinfo.

"Consequently, the impact for Qatar, the main LNG exporter, could be quite substantial as it would have to cut back production."

Primarily big exporters of gas such as Japan and South Korea would likely be affected in the event of blockade. Otherwise, global impact would not be much serious. The reason is simple in the current situation. Seaborne gas supplies account for nine per cent of global gas consumption while this percentage is 57 per cent for oil. Future supplies of LNG need to be secured however.

"Enhancing the region's physical oil and gas interconnections is one such cooperative step that can be taken. Another is the pursuit of new export routes. Only through such actions can greater confidence in dealing with any shocks to the transport system be achieved," said Jafar.