Govt mulls $2b LNG import decision

ISLAMABAD: The government is sitting on a decision to import an estimated $2 billion worth of gas to cope with winter demand, despite the Petroleum Division's advice to begin the import process from the first week of October to avoid any disruption of supplies and social unrest. The Petroleum Division had cautioned that due to any further delay in importing the gas, the government may have to resort to disconnecting supplies to the industry, power, fertiliser, compressed natural gas (CNG) and cement sectors to make sure residential consumers keep getting rationalised supplies and unrest is avoided. But the Cabinet Committee on Energy (CCOE) has not yet taken up the gas load management summary of the Petroleum Division, which had sought authorisation for import of 22 cargoes of liquefied natural gas (LNG), some of those to be sourced from the United States and Azerbaijan, according to government officials. The division had sent a summary to the CCOE last month after finalising the demand for the import of 22 LNG cargoes in consultation with the Task Force on Power Sector Reforms and the National Coordination and Management Council (NCMC). The summary sought authorisation of the cabinet body to start the import process by different companies from October 7 to October 10 for the import of 12 out of 22 cargoes, according to these details. But so far no formal decision has been taken, although Prime Minister Shehbaz Sharif chaired a couple of meetings to finalise the exact quantity of cargoes. The cabinet secretary did not respond to a request for comments. Petroleum Minister Ali Pervaiz said the matter was pending a decision with the CCOE. The government had hoped to receive at least 11 cargoes from Qatar under a long-term deal, but due to the uncertain situation in the region, Doha has already extended the force majeure till November, according to the officials. Despite reaching a consensus on the need for the import of 22 cargoes, there was a view that only 15 cargoes should be imported. But this could heighten shortages during the peak winter season, the sources added. On Sunday, Pervaiz said in Lahore that the prime minister had already held a few meetings to address "the bigger problem we will face as we move into winter, the gas and LPG". The minister had said that after reviewing the situation with the prime minister, whatever difficult decisions were needed would be taken and fuel arrangements would be made from wherever required. A senior government functionary said one of the major reasons for the delay was the cost of LNG import. At an average price of $87 million per cargo, the government needs nearly $2 billion for importing gas from November to February. The gross official foreign exchange reserves remained at a little over $21 billion even after borrowing $3 billion through Eurobonds ahead of making a major debt payment of the same amount. The Ministry of Economic Affairs published the external borrowing report on Wednesday. It showed that Pakistan received $5.4 billion in external loans during the July-September period. This is inclusive of the Eurobonds, as other financing sources are drying up. The government had initially estimated the cost of import at $1.5 billion, including supplies from Qatar at roughly $12 per million British thermal units (MMBTU). But due to the extension in force majeure, there were high chances that spot purchase may be the main bet to meet demand, according to the sources. The CCOE had been requested to keep domestic consumers as top priority for sustained supply of gas during 5am to 10pm with optimum pressure during cooking hours to avoid any social distress and unrest. According to the proposal, industry, power and fertiliser will get gas supplies as per their demand on an as-and-when-available basis, whereas supplies to CNG would be curtailed, especially in December 2026 and January 2027. In extreme winter situations, and in case of unavailability of required LNG cargoes or disruption in indigenous gas supply at sources in the north, gas supply to CNG, cement and industry would be curtailed for diversion to the domestic sector. The Petroleum Division had requested the CCOE that Pakistan LNG Limited should be allowed to arrange four cargoes from Azerbaijan under a bilateral deal, and that such an arrangement should be put in place by October 10, a deadline that has already lapsed and could now carry political and financial costs. The plan also included imports by Pakistan State Oil in collaboration with other players for four cargoes, but such arrangements were to be made by October 7, according to the sources. The proposal also required Pakistan LNG Limited to explore three cargoes from a United States government-nominated firm by October 7, with the deal to be finalised by the end of this month. However, this too has not materialised, said the sources. The government was looking for nine cargoes to meet power sector demand and another 13 for the requirement of the residential sector. The Petroleum Division was of the view that due to the ongoing conflict in the Middle East, the likelihood of delivery of the contracted cargoes by Qatar was uncertain. During the winters, demand is projected to almost double from 850 million cubic feet per day (mmcfd) to 1,600, with a major increase in demand on the Sui Northern Gas Pipeline Limited (SNGPL). SNGPL demand is projected to grow from 550 mmcfd to 1,100. The government officials said at least two fertiliser plants on SNGPL will face suspension of gas supplies. According to the food ministry, closure of Fauji Fertiliser Bin Qasim, FatimaFert and Agritech may cause a shortfall of 109,000 metric tonnes of urea per month. The Petroleum Division has tentatively worked out the impact on foreign exchange reserves of importing urea versus importing LNG and subsidy. It was of the opinion that import of LNG and its supply will have higher financial implications for one month only compared with import of urea.