Next 12 months are very crucial for the economy, jobs, exports, FEX reserves, stability and security of Pakistan. One of the main factors is availability of Natural Gas to the industrial sector. The indigenous Sui Gas scenario is in front of us – declining sharply. A serious matter indeed. Spot LNG has become expensive, so much that Pakistan has not bought a spot cargo in last few months. The Term Contracts of LNG are also being breached by the suppliers. Lesson is not to sign long-term contract with traders who do not own molecules. Tenders opened on 7-July-2022 by PLL for 10 cargoes from July to September, 2022 were an eye opener; NO BID (there were no bidders).
This means that 10×140,000 cubic meters or on an average 375 mmcfd RLNG would not enter the gas national grid systems in 1Q of FY 2022-23. This equates to that 10×3.2 million MMBTU or 32 million MMBTU would not enter the economy in the first quarter of FY 2022-23 to earn precious and much needed FEX, keep jobs and support GDP growth. It is highly likely that the same scenario will be repeated in 2Q, 3Q & 4Q.
Looming gas shedding crisis in FY 2022-23 requires a solution. Loss of 32 million MBTU (375 mmcfd) due to NO BID of Spot LNG needs to be replaced.
We all know that the Ukraine war is not ending this year or the next year. It may be noted that PLL may get NO BID. Therefore, we may not get Spot LNG in 2Q, 3Q and 4Q of FY-2022-23. Do nothing is not an option.
This article is about a viable, cost effective, doable and fast track solution. Industries need to start planning for upcoming gas situation by taking remedial measures. One solution is LPG Air Mix.
|Crises Like Shortfall of Gas to Industrial and Commercial Sectors (MMBTU) Table-1|
|FY 2021-22||FY 2022-23|
|Yearly Sales SSGCL||206,124,000||182,884,000||Planned Declining sales Volumes 24bbtu or 68 mmcfd|
|Each Quarter Sales SSGCL||51,531,000||45,721,000||Planned Declining sales Volumes 6bbtu or 68 mmcfd planned gas shedding|
|Not to be Supplied in 1Q||32,000,000||Unplanned Gas Shedding of 375 mmcfd|
|To be Supplied in 1Q||13,721,000|
|Shortfall of Gas||70%||Need a Solution|
|Yearly Sales to Exporting Industry in SSGCL||43,745,000||30,660,000||Planned Declining Sales Volumes 13bbtu|
|Quarterly Sales to Exporting Industry in SSGCL||10,936,250||7,665,000||Planned Declining sales Volumes 3.3bbtu|
|Source: Para 6 Table 13 OGRA Decision dt. 03-June-2022|
1- Table-1 shows critical situation in Sui Gas supplies to the industrial and commercial sectors which contributes 78% to GDP. For SSGCL system, annual sales forecast estimated by SSGCL and approved by OGRA envisages a major decline of 24 million MMBTU in FY 2022-23 to the industrial and commercial sectors due to non-availability of local gas and LNG. Declining trend of gas supply is highly undesirable situation. On average quarterly basis estimated sales volume is 45 million MMBTU, however, No-Bid of 32 million MMBTU in July, 2022 to Pak LNG Ltd (PLL) would cause supply to dwindle to 13 million MMBTU; or a shortfall of staggering 70%. The export industry will be strangulated causing decline in Export and FEX earnings. The situation is giving a bleak situation of the industrial sector. The government, KCCI, APTMA, KATI, Ministry of Energy and the Planning Commission may take serious notice of this situation. An alternate solution is desired to fill-in for 32 million MMBTU shortfall.
100 mmcfd LPG Air Mix can be injected to the National Grid by Nov-2022. Not a complete relief but 1/3 relief, indeed.
2- Pakistan policy makers know that there is a worldwide shortage of LNG, which is expected to remain for the next decade, because LNG is being bought by European countries at USD 50/MMBTU (DES/C&F), which is expected to rise to USD 60/MMBTU in October. Pakistan and BD cannot compete. Therefore, some solution needs to be evolved as an alternate to imported LNG. Other countries have taken steps to mitigate the gas crisis. One option is to LNG from Russia and the second option is to inject LPG into the system.
3- LPG Vs LNG: There is shortage of LNG due to Ukraine crisis, however, LPG is surplus in the international market, especially in the Arab Gulf; our neighbors. Couple of years ago, LNG was much cheaper than LPG but it is the opposite now and it is expected that the situation will remain the same. Prices of LNG will remain high till Russia and USA becomes friends; highly unlikely in the next 2 decades. The cold war is here to stay. The following Table-2 shows comparison based on USD/million Btu; apple to apple:
|LNG/LPG Comparison 01- August-2022 (Table-2)||US$/Million Btu|
|Imported LPG injected into National Grid||21.9461|
|Imported Spot LNG DES (C&F)||50.0000|
|Imported Spot LNG Injected into National Grid||65.7646|
|Advantage of LPG injection Vs Spot LNG||44 +|
|Quarterly Volume Not Served||32 Million MMBTU|
|Quarter Savings FEX (USD) by Injecting LPG Instead of Spot LNG into the National Grid||32 Million x $ 44 = $ 1.4 Billion|
|Annual Savings FEX (USD) by Injecting LPG Instead of Spot LNG into the National Grid||$ 5.2 Billion|
|Yearly Sales SSGCL||182,884,000 Million BTU|
|Each Quarter Sales SSGCL||45,721,000 Million BTU|
|Unplanned Shortage in 1Q (possibly in 2/3/4Qs)||32,000,000 Million BTU|
|Planned Shortage in Each Quarter||5,810,000 Million BTU|
|Total Gas Shedding Each Quarter||37,810,000 Million BTU|
|Unplanned Shortage in 1Q (possibly in 2/3/4Qs)||375 mmcfd|
|Planned Shortage in Each Quarter||68 mmcfd|
|Total Gas Shedding Each Quarter SSGCL||442 mmcfd|
4- Fast Track Solution: In order to mitigate the crisis situation due to massive gas shedding, the government needs to opt to injecting LPG Air Mix at various predetermined nodes of SNGPL/SSGCL to replace expensive, unavailable and unreliable Spot RLNG. 1Q is almost half way done. If the government allows injection into the national grip by the private sector on first come first serve basis with injection point price same as being notified by OGRA (Rs 217.916/kg) on monthly basis; would be quickest remedy to 3Q & 4 Q FY 2022-23 and next decade. Full 442 mmcfd replacement may not be possible but 100 mmcfd is very much possible by Nov-2022. Compared to Spot LNG at USD 66/mmbtu (Rs 14,520/mmbtu), LPG would be USD 22/mmbtu (Rs 4850/mmbtu). Compare to Sui Gas which is Rs 1200/mmbtu, of course LNG and LPG are no match; but Sui is not available – that is the catch. I would refrain from calculating FEX and GDP losses due to massive gas shedding in FY2022-23 but some relief would be attained due to LPG Air Mix injection (100 mmcfd) in the national grid. Similar, analysis can be done for SNGPL system. Needless to say, there is no better solution than indigenous gas exploration and production.
LPG can replace Spot LNG as a short and medium term solution. Spot LNG is USD 66/mmbtu while LPG Air Mix would be USD 22/mmbtu
5- ECC, OGRA and the Ministry of Energy need to allow LPG Air Mix as an alternate to Sui Gas in the national grid, housing societies, high rise buildings, cities and industries on fast track basis.