Amendments in the LNG Policy 2011. Who will be the beneficiary? Private investors or General Public

Khaleeq Nazar Kiani

The ongoing Ukraine-Russia war has pushed the energy prices to a record level due to which the economy of energy-deficient countries is passing through a difficult situation. Inflation is high due to high energy prices. The developed countries are trying to build up their energy reserves to avert any possible shortage, especially in the coming winter, and are ready to secure it at any price. LNG comparatively a cheap source of energy is the most sought energy commodity in the international market which has taken the price to an unprecedented level.
Pakistan started importing LNG in 2015-16 when the first LNG terminal was established on BOT mode. The domestic gas production and demand were almost equal till 2010 but then the depletion in the gas reserves and no significant discovery changed the equilibrium. The construction of gas-fired power plants in the last decade has immediately increased the demand for LNG.
At present, Pakistan has signed three long-term contracts for the supply of LNG, two with Qatar and one with ENI. The first contract was signed during the Nawaz Government for the supply of six cargos per month at 13.37 percent of the Brent for 15 years. Imran’s Government also signed relatively a cheap long-term contract for the supply of two cargos per month at 10.2 percent of the Brent for 10 years. The third long-term contract is with ENI for the supply of cargo at 12.14 percent of the Brent for 15 years.
In the beginning, gas-fired power plants, CNG stations, and industries were the main users of the LNG but now domestic consumers are also added to its beneficiaries because of growing demand despite the high price compared to domestic gas. The LNG price is four times high than domestic gas.
The Natural gas consumption was 4.333 Cub ft /day in December 2021 while in 2020 it was 3.973 Cub ft/day and in this, the LNG part was 23 percent. The two LNG terminals, Engro Elengy Limited and Gas Port LNG with a combined capacity of 1440 mmcfd are functional and two others are in the pipeline.
The power sector is the major user of LNG. The electricity produced from LNG is cheaper than Furnace oil only when its price remains under $20.The power sector is in complete disarray and needs major structural reforms. At the production stage, the power companies are enjoying guaranteed profit and capacity payments while there are huge losses in the transmission and distribution system. The government has found an easy solution in raising the tariff which is now unbearable for the general public. For the last two decades, there is continuous capital hemorrhage. The power sector’s circular debt is around 2500 billion but very few know that the gas sector’s circular debt has now reached 1500 billion. In nutshell, the energy sector is a complete mess.
The Prime Minister is visiting Doha next week and probably the main purpose of the visit is to strike a long-term agreement for the supply of LNG. The long term contracts are always good to avoid market fluctuation and future planning but in Pakistan’s context, another long-term contract without reforming the energy sector will not be prudent. It will increase the size of the circular debt. This may also be the not right time to enter into a long-term contract when the commodity price is high due to the Ukraine war. We should wait to calm down the LNG market.
Last week, Federal Government has taken two important decisions. First, the National Assembly passed the Inter-Governmental Commercial Transaction Act 2022 and barred the courts to entertain any application, petition, or suit against any process undertaken or done under this Act.
Second, on Friday ECC approved the amendments in the LNG policy 2011 for exemption from Mandatory Third Part Access to new terminals on the plea that the supply and demand gap is widening and gas load management is affecting the economic activities. Both decisions are interlinked. The changes in the LNG policy 2011 are a complete U-Turn from its main principle/objective, Use- it or Lose-it. The deviation from this principle will give the opportunity to the private investor to earn profit like IPPs, from poor masses, already struggling for their livelihood.