RLNG fiasco – between a rock and a hard place

There is a potential RLNG (or broader electricity) shortage threat looming for July. One of the two RLNG terminals needs dry docking (shutdown for detailed inspection and maintenance). The problem is that the company wants it to happen at the peak season, and this could create gas – in turn electricity – shortage, especially when two of the Sindh gas fields are closed at the same time. This is sending jitters in Islamabad.

Engro Elengy Terminal Pakistan is the first LNG import facility in Pakistan. The Floating Storage and Regasification Unit (FSRU) having capacity of 630 mmcfd has a contractual agreement of 15 years with the Government of Pakistan with two maintenance period (dry docking)– after every five years. The terminal must tell government one year in advance to schedule the maintenance period without risking country’s supply.

In second half of 2019, Engro informed government about its plans of dry docking in May 20. Then COVID came. There was shortage of technicians and dock yards were occupied by ships parked as shipping demand plummeted. Engro informed authorities that they will not go for dry docking as scheduled due to COVID limitations. The terminal got six months extension from Class Society – third party surveyors, for dry docking. But by Oct 20, COVID fear was no less, and dry docking was not possible.

Then Engro said that they will have underwater maintenance at Port Qasim – where the FSRU is parked -and get a few months extension for 5-year planned dry docking. Couple of months back the company said that the maintenance exercise cannot be done at Port Qasim (without Class Act surveyors visit) as all the four tankers need to be cleaned which will take some time and thus cannot happen at Port Qasim. Furthermore, this must go to a dockyard – in Dubai, Singapore or somewhere else, before June end, as it is not safe to run under the circumstances.

Excellerate is the company that supplies FSRU to Engro. Due to delay in dry docking, they are facing insurance problems and the doctor’s prescription is to send the existing FSRU – ‘Exquisite’ for dry docking before June end. The process will take 2-2.5 months and during that time Excellerate will replace this FSRU with another FSRU– ‘Sequoia’. The latter FSRU is of better capability. Sequoia capacity is 150 mmcfd higher than Exquisite and the company recommends to Sequoia given the government gives third party access to the terminal for excess capacity. Otherwise, it has to be replaced again by Exquisite.

The problem is that replacing the FSRU will take 2-3 days – no LNG supply from this at that time, and another 5-7 days for testing which would limit the supply. Then there are risks of delay in this shift. This will result in 600 mmcfd gas shortage during shift time and lesser shortage in testing time. The problem is compounded when simultaneously two gas fields in Sindh are closed due to maintenance– that will take commutative shortage to as high as 800-900 mmfcd.

Such shortage can lower the supply in the gas pipeline and can create havoc. Let’s hope that risk does not materialize. But the gas shortage will have an impact on power generation from RLNG based plants as 1,320 MW plant takes around 170-180mmcfd to run. The power shortage can be lowered by rationing gas supply to fertilizer. CNG and others. The other option is to run old inefficient power plants on FO and diesel – the excess fuel cost and inefficiency cost must be borne by the government in shape of circular debt, or consumers to pay for it.

Electricity load shedding in peak summers when the government is talking about excess capacity can do considerable political damage. Both planning minister (head of CCoE) and finance minister are not liking the idea of dry docking at peak summer. Engro is pushing for it as risks of using the FSRU are high. They may not get insurance or get it at higher premium.

The midway option is to delay the dry docking by a few months. One other option is to use the second RLNG terminal at full capacity by buying LNG at spot. However, that would cost government extra bucks as the spot prices today are much higher than our long-term contract prices. Plus, there is a limit to what the second terminal can be used for. Had the third terminal been put up, the risk could have been managed well. But that is not the case.

Anyhow, the midway option needs to be opted. For government, best time for dry docking is October when the demand of gas is low. FSRU Exquisite can be replaced by Sequoia. The shifting time low supply can be managed. And later in March or April next year Exquisite can be shifted back from Sequoia, if Engro Terminal does not get third party access. Both October and March are shoulder-months and gas demand is low. However, there could be higher cost of keeping Sequoia engaged in Pakistan in peak winter season Nov-Feb. Excellerate would like to earn on bigger ship. Someone has to bear the cost of keeping bigger FSRU in Pakistan at peaking season. From supplier perspective, best time for shift is low demand time of summer – but that does not suit government both economically and politically.

Therefore, midway solution is to get basic cleaning while conducting the replacement exercise in August and replacing by October or November – if needed. Government can plan for alternate supply and the load on the grid would be lower at that time. Whatever the solution is, it should be taken soon before the crisis hits hard in July.

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