KARACHI: Pakistan’s gas sector is facing mounting pressure as indigenous production continues to decline, LNG demand remains subdued and gas distribution companies struggle with worsening liquidity constraints, while proposed structural reforms are unlikely to provide an immediate solution to the industry’s financial challenges.
According to a new study by the Pakistan Credit Rating Agency (PACRA), domestic gas production is projected to fall sharply from around 2,634 million cubic feet per day (mmcfd) in FY24 to approximately 1,266 mmcfd by FY34.
As a result, the share of indigenous gas in Pakistan’s overall supply is expected to decline from around 73% to just 25% over the same period, increasing the sector’s dependence on imported gas.
LNG demand remains weak
In the near term, LNG demand is also expected to remain subdued. LNG imports fell from around 6 million tonnes to approximately 3.7 million tonnes during the first nine months of FY26, as industrial and power-sector consumers increasingly shifted towards solar energy and other alternative sources.
The study noted that the proposed Turkmenistan-Afghanistan-Pakistan-India (TAPI) and Iran-Pakistan gas pipelines could diversify Pakistan’s gas supply over the longer term. However, continued delays in both projects mean their contribution to the country’s immediate energy requirements remains uncertain.
Distribution companies face liquidity crunch
The financial position of gas distribution companies has emerged as another major concern.
Working-capital pressures have intensified, while delays in tariff adjustments and weak recoveries could further constrain liquidity and increase the borrowing requirements of gas utilities.
The sector is also burdened by a large circular debt, estimated at around Rs3.4 trillion, further limiting the ability of distribution companies to maintain financial stability.
LPG outlook relatively brighter
The liquefied petroleum gas (LPG) segment presents a comparatively more positive outlook.
Local LPG production increased by around 15.5% in FY26, while imports declined 12% year-on-year to approximately 1.5 million tonnes. The addition of around 136,000 tonnes per year in production capacity could further strengthen domestic supplies.
Despite this improvement, Pakistan is expected to remain significantly dependent on imported LPG. The government’s FY27 import target stands at around 1.6 million tonnes.
LPG prices and industry margins will therefore remain exposed to fluctuations in Saudi Aramco’s contract price, geopolitical developments, freight rates and movements in the rupee-dollar exchange rate.
Major gas-sector restructuring planned
Meanwhile, the government, with support from the World Bank, is considering a major restructuring of Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGC).
The proposed model would separate transmission and distribution operations and create one National Gas Transmission Company alongside four provincial distribution companies.
The reform package also includes a new multi-year tariff framework, third-party access to gas pipelines and the gradual opening of gas trading to private-sector participants. Under the proposed model, around 20% of gas volumes could potentially be made available to private players during the first year.
According to PACRA, these measures could improve cost transparency, reduce unaccounted-for gas losses and strengthen revenue collection, potentially helping address the sector’s massive circular debt.
However, the benefits are expected to emerge gradually rather than provide an immediate financial turnaround.
Reforms face implementation risks
The proposed restructuring also faces significant implementation risks, including resistance from existing gas companies and potential delays in executing the reform programme.
The restructuring would fundamentally alter the way SNGPL and SSGC generate and report margins, making comparisons with their historical profitability less meaningful.
Greater private-sector participation could also introduce increased competition and gradually challenge the existing monopoly positions of the two gas utilities.
Overall, PACRA said the near-term outlook for Pakistan’s gas sector remained challenging, with declining indigenous production, weak liquidity, high circular debt and uncertainty surrounding major gas infrastructure projects continuing to weigh on the industry.
While restructuring, improved efficiency and greater private-sector participation could strengthen the sector over the long term, these measures are unlikely to materially improve its credit profile in the immediate future, the study concluded.
Story by Tanveer Malik
