Amid rising number of unaffordable bids, the Petroleum Division has opposed capacity enhancement of existing terminals of liquefied natural gas saying it would lead to competition barrier and create private monopoly.
“Allowing Terminal-1 (of Engro Elengy) to expand existing terminal capacity may create the competition barrier and discourage the market for investing in new LNG terminals and infrastructure as there is limited pipeline capacity available for Gas Transport Agreement,” warned Directorate General of Liquid Gases (DGLGs) — a dedicated expert arm of the Petroleum Division.
Officials said the government entities had been compelled to purchase expensive LNG from spot market over the last couple of months and had to even cancel a series of bids for being too expensive. Interestingly, the two government entities — Pakistan LNG Ltd (PLL) and Pakistan State Oil (PSO) — involved in LNG imports are keeping the bid results totally secret to avoid public criticism.
As a result, only final weighted average sale price for a month computed by the Oil & Gas Regulatory Authority (Ogra) is made public. However, the expensive spot bids are currently camouflaged because of cheaper long-term supply contracts from Qatar. Interestingly, Ogra is not authorised to question the prudent cost of imports and is compelled to only compute the weighted average LNG price of 10-12 vessels per month.
This was also evident from the fact that a bid at the rate of $11.66 was cancelled by PLL for delivery and was purchased from the same bidder for the same dates a couple of days later for $12.77 — a difference of $1.11 per unit for about 140,000 cubic metre. Even before this, the weighted average sale price for July at $12.92 per mmBtu made public by Ogra a few days ago showed a 25pc increase over average LNG price of $10.33 per mmBtu in June.
The bids for four spot LNG deliveries in September accepted by the PLL ranged between $15.2 to $15.5 per mmBtu — perhaps the highest since the beginning of LNG imports in 2015. Interestingly, about 8 bids for September and October were cancelled including those at $13.79 to $13.99 per mmBtu from Qatar as some other bids touched $16 and a single bid for PSO came in at $20 per mmBtu.
A senior official said the government was expecting better result through the revised round of bidding as prices in the Asian Spot LNG market had fallen below $12 per mmBtu. But these uncertainties were resulting in fuel management issues and leading to electricity shortfalls.
The electricity consumers and CNG operators become the ultimate losers — in the form of higher power tariff and CNG getting uncompetitive against petrol, respectively. The gas companies also suffer through increase in circular debt that may get close to Rs200bn by end of the year from about Rs130bn in June this year.
In an advisory note to the policy makers, the DGLGs reported that Terminal-1’s storage capacity was 148,724 cubic metres and guaranteed regasification capacity of 630 mmcfd (4.5 MTPA — million tonnes per annum). As per expansion plan, Engro wanted to increase the base load capacity of the Floating Storage & Regasification Unit (FSRU) to about 780 mmcfd with peaking of up to 960 mmcfd and storage capacity of about 170,000 cubic metres. “Internationally, a FSRU with about 150,000 cubic metres storage capacity is usually designed for throughput of around 3MTPA of LNG to have some operational flexibility for smooth operations,” it said.
The DGLGs put on record that the Government of Pakistan (GoP) had established the Engro terminal and related LNG import infrastructure and booked its entire capacity at its own risk. Arrangements were finalised on Fixed Term and Fixed Capacity Charges and the Engro terminal tariff included the cost of entire LNG infrastructure including the jetty, not just FSRU.
“By simply replacing the FSRU with a larger one, the operator will get excessive returns on the back of the risks entirely undertaken by the GoP for setting up the country’s first LNG import terminal,” the note said.
It said Excelerate Energy of USA had already acquired an asset parked in Pakistan in the form of FSRU for a period of 15 years and replacing an FSRU after six years was no additional investment. “Economic benefit of initial investment is still pending for next 9 years as investment was made for 15 years, hence, its replacement is not an additional investment,” it said.
It also warned that a investigation by National Accountability Bureau (NAB) with regards to alleged illegal award of LNG Terminal-1 contract to Engro was under process and made the process of expansion and third-party access to Terminal-1 uncertain while the Federal Cabinet in its decision had set precedence by unambiguously directing to withhold any negotiations with LNG terminal owners till conclusion of NAB inquiry.
The DGLGs said the expansion to EETPL terminal would require major amendment in LNG supply agreement (LSA) and its ancillary agreements. Since these agreements have already been submitted to the offices of NAB in wake of ongoing NAB investigation, therefore reopening them or entering into new contractual arrangement involving Terminal-1 would only invite the attention of NAB towards an already controversial issue and may be termed as an illegal activity.
Also, all arrangements related to terminal-1 were compliant with procurement rules. Therefore, any modification in this structure will be in violation of the said rules and could attract legal complications and transparency issue. Unlike merchant terminal, where multiple users can bring in their LNG and regasify at the terminal, EETPL terminal is a Government dedicated terminal whose entire capacity is booked by SSGC.