The government’s plan to establish two new LNG terminals appears to be in limbo as Minister for Maritime Affairs is unhappy at the volume of capacity for the two terminals, arguing that allocation of pipeline capacity, as proposed by the Petroleum Division, may not serve the purpose, well informed sources told Business Recorder.
On October 8, 2021, the Petroleum Division briefed the Cabinet Committee on Energy (CCoE) that as directed by the Oil and Gas Regulatory Authority (OGRA), Sui Northern Gas Pipelines Limited (SNGPL) will allocate 250-300 MMCFD pipeline capacity to each of the new LNG terminal developers whereas Sui Southern Gas company (SSGC) will provide land for the establishment of fire-fighting station and tie-in-points to the new LNG terminal developers on the same terms and conditions on which the tie-in-points were allocated to the earlier existing terminals.
Petroleum Division further stated that both new LNG terminal developers should close their Financial Investment Decisions (FIDs) within 60 days of signing of the Gas Transportation Agreement (GTA).
It was also noted that the allocation of pipeline capacity to the new LNG terminal developers along with execution of GTA will enable the new LNG terminal developers to achieve their FID.
The Petroleum Division stated that after extensive deliberation, a consensus has been achieved with both companies (SNGPL and SSGPL) on arrangements, in consideration of existing contractual commitments with domestic, industrial and commercial clients apart from other seasonal variations which are as follows: (i) the firm commitment for making available pipeline capacity on 3 months rolling basis; and (ii) capacity to be available with effect from January 1, 2023 to the new LNG terminal developers.
The spilt of proposed capacity distribution by the two utilities for two new licences will be 500-600 MMCFD, of which 250-300 MMCFD will be for Tabeer Energy and Energas each.
SSGCL will allocate 350 MMCFD capacity of which 200 MMCFD will be to Tabeer Energy and 150 MMCFD to Energas, whereas SNGPL will allocate 50-100 MMCFD to Tabeer and 100-150 MMCFD for Energas.
Both terminal developers would be requested to communicate (within 60 days) dates of FID along with dates of Commercial Operations so that both utilities are enabled to effectively manage capacity allocation accordingly. Both terminal developers would be requested to conclude GTA (Access Agreement) with both utilities so as to enable OGRA to initiate approval process.
Petroleum Division further revealed the following next steps to be taken: (i) signing of GTA by respective parties; (ii) approval of signed GTA by OGRA; (iii) communication of dates of FID and COD; (iv) finalizing dates for ground breaking; and (v) coordination of entities for utilization of allocated capacity after COD.
The Petroleum Division also informed the forum that the issue of tie point has been resolved and land has been acquired by the SSGPL on lease from the IDSM. It will be approved in the next meeting of the Board.
The Chairman CCoE, Asad Umar, recognized the efforts made by the Petroleum Division in achieving the consensus with the parties regarding allocation of pipeline capacity to the new LNG terminal developers.
However, Minister for Maritime Affairs Ali Zaidi stated that allocation of pipeline capacity, as proposed by the Petroleum Division, may not serve the purpose. He further stated that the terminal developers will not be able to close Financial Investment Decision on the proposed capacity allocation, as offered by the Petroleum Division; and apprised the forum that both the terminal developers were satisfied with the allocation of pipeline capacity in SSGCL network. However, they require firm commitment of 250-300 MMCFD each, in the SNGPL network after their Commercial Operation Dates (CODs).
The Minister for Maritime Affairs further reiterated the stance of his minsitry that the required pipeline capacity exists in the SNGPL adding that due to unknown reasons SNGPL is reluctant to allocate the capacity, despite the fact that OGRA as the regulator has also endorsed the stance of the Ministry of Maritime Affairs, twice.
The Chairman OGRA argued that since sites for both the new terminals were different, there would be a gap of six to nine months between the commissioning of LNG terminals of Energas and Tabeer.
While appreciating the efforts of Secretary Petroleum in achieving consensus, the Minister for Energy stated that it is up to the terminal developers to proceed with the execution of GTA as well as achieving their FID and provide COD.
The then Finance Minister Shaukat Tarin, re-designated as Advisor to the Prime Minister on Finance and Revenue on 18 October 2021, agreed to the position presented by the Petroleum Division on the plea that it is their domain to decide the issue of pipeline capacity allocation.
The forum agreed with the view of the Petroleum Division and it was given the go ahead to sign the GTA as per reported consensus conveyed to the forum. After detailed discussion, the CCoE approved capacity for two terminal developers, proposed by both the gas companies.
The CCoE further directed the relevant parties to proceed with the execution of Gas Transportation Agreement (GTA) and take subsequent steps accordingly.
According to media reports the sponsors of both terminals have also expressed their inability to proceed with their investment plans in the prevailing conditions.
This issue will land in the Federal Cabinet in its next meeting to be presided over by the Prime Minister Imran Khan.