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Apprehension over gas diversion to power plants

The fertilizer industry has expressed dismay over a recent decision of the Cabinet Committee on Energy (CCoE) to divert natural gas to pipeline system from Mari Gas Field. It has also asked the government to review the decision to ensure uninterrupted supply of locally produced fertilizer to farmers to enable the country to sustain food security under the most difficult prevailing time.

“The decision of the CCoE to provided gas from the Mari Gas Field to the network through a new interconnection, is a grave threat to the country’s food security in the long term since this would not only hasten the depletion of indigenous resources but also put at risk the billions of dollars of investment”, was stated by Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC).

In letters to Ministers of Industries & Production, National Food Security, Planning & Development and Energy, the FMPAC warned that the decision will eventually cause unemployment in the country of those related to the industry directly and indirectly.

The CCoE had decided on 26th November 2020 to ensure additional 50 million cubic feet per day of natural gas from Mari Gas Field to the Sui Northern Gas Pipelines Ltd (SNGPL) system by early January and installation of compression facility by Mari Petroleum on its field to ensure its continuous supplies.

The FMPAC said the Habib Rahi Limestone (HRL) reservoir of the Mari Field was a medium heating value gas with high carbon dioxide and nitrogen contents, which make it beneficial for the production of urea fertilizer by the facilities specifically designed for such purposes, but inversely affect the efficiency of any power plant. Utilization of this gas as fuel is an uneconomical mode, a fact that had been realized under Fertilizer Policy 2001.

In the past, the government had decided to allocate a certain portion of this gas to Guddu Power Plant, which was in itself a debatable decision because of the very low efficiencies of the power plant. “Now the supply to SNGPL is contradictory to the stated policies of GoP and counterproductive for the long-term assurance of national food security,” the letter said. It claimed that every 100mmcfd transferred from HRL will meet only 2% of the current natural gas requirement in the country but will chip away nearly 20% of the fertilizer sector’s natural gas requirements in coming years.

“While the impact of this diversion of domestic gas to the SNGPL network may not have visible effects in short term, it definitely threatens the national food security and billions rupees of loss in taxes due to the early closure of domestic industry,” it said while adding that it was not prudent to divert gas away from the long-term needs of agriculture sector to meet short-term needs of network consumers.

A government official said there was no urgency for the government or the CCoE to reconsider the decision as natural gas supply to fertilizer industry was never a priority in winter months when entire focus was to ensure maximum supplies even from imports to the residential consumers. He said the CCoE had been given a clear picture of the fertilizer stock position and gas supplies to even Punjab-based fertilizer plants was ensured until mid-November.

The fertilizer industry has also questioned the use of natural gas as fuel in power plants, general industries and domestic sector saying the gas was a key component of country’s energy mix but unfortunately the share of value-added products from gas was extremely low.

DAP price continue their uptrend in December 2020, rising 3% MoM and 36%YoY to US$374 per ton. DAP prices are currently hovering at US$390 per ton, translating into local DAP price of Rs4,000/bag. Approximately 60% of local DAP demand is met through imports, where a supply shortage in international markets could result in an upsurge in DAP prices in Pakistan (case in point Rs400/bag increase in DAP price by EFERT, while FFC & FFBL are expected to follow). On the other hand, urea price remained flattish MoM averaging at US$245 per ton, but are up 17% FYTD following a reversal in global demand and energy prices from their early CY20 lows. In local context, the international urea price translates into Rs2,650/bag, at a 65% premium to current local prices, leaving a wide margin for the Fertilizer players to increase urea price (FFC/EFERT already increased up to Rs30 per bag.

Fertilizer was the only industry in the country using natural gas for value-added purposes in sizeable quantities that remain a key source of national food security and hence all the past governments allocated certain priority to indigenous fertilizer production. Dedication of Mari shallow gas for fertilizer under the Fertilizer Policy 2001 was part of this philosophy.

It said there could be arguments for importing fertilizers for domestic use but their availability at the right time and at the right price could never be assured.

Besides the importance of agriculture in terms of economy and employment, “food insecurity is anticipated to reach nearly 60% country-wide in 2030 if positive steps are not taken to enhance domestic production of food commodities” for which domestic fertilizer was a must,” said the fertilizer industry.

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