ISLAMABAD: Oil and Gas Regulatory Authority (Ogra) has asked the government to immediately create a National Gas Transport Company (NGTC) classified as a “strategic asset” to initiate reforms in the gas sector and open up the gas market competition and facilitate transitions a massive gap between supply and demand that the country currently faces.
According to Ogra’s estimates, Pakistan’s unrestricted gas demand is currently over six billion cubic feet per day (bcfd), compared to 3bcfd of total supply, including imported LNG, leaving a growing shortfall of more than 3bcfd.
In a presentation, gas utility member of Ogra, Muhammad Arif, highlighted a range of gas market challenges, including the resistance of gas utilities to reforms for fear of losing market share; limited domestic gas reserves and production, no gas storage facilities; and limited LNG handling facilities, both in terms of terminals and pipelines. Other issues also included the country’s perceived investment risk, general economic conditions, and the lack of midstream and downstream private sector involvement.
The Ogra member pointed out that the optimal use of infrastructure capacity was an important part of the gas sector reforms and that a third party access regime (TPA) was already in place for the gas pipeline network. , but “Sui companies’ fear of losing customers is a bottleneck.”
World Bank-backed plan envisions junior gas companies instead of SNGPL, SSGCL
Given the limited gas availability, the government was advised to review gas supply priorities and formulate an upstream gas allocation policy to create an enabling environment for multiple players.
For its part, Ogra is finalizing the TPA for the LNG terminal and storage facilities for which the government should introduce special tax incentives to red carpet new investments instead of creating barricades. According to the Ogra member, the exclusivity of two gas utilities in their franchised areas has ended and “implementation has begun to pay the way for private participation in the transmission and distribution networks.”
Ogra has also sought policy guidance from the federal government regarding the extension of transmission and distribution networks to new towns and villages despite rapidly increasing gas shortages in a context of declining national gas production and unaffordable international prices.
Editorial: Gas sector reforms
The World Bank (WB) has supported gas sector reforms that envisage the break-up of two gas utilities — Sui Northern Gas Pipeline Ltd (SNGPL) and Sui Southern Gas Company Ltd (SSGCL) — into at least five gas companies public, in addition to facilitating many other private operators and ensuring the domestic supply of consumers in a gas-producing province, were taken over by the PML-N government but have been at a standstill since 2017 for reasons policies and the lack of coordination with the provinces.
The reforms aimed to dismantle SNGP and SSGCL so as to separate their transmission and distribution activities. There would then be at least five new licenses comprising a transmission operator and four distribution companies, each with provincial borders as a sales area to supply only domestic gas to residential consumers with the approval of the Council for Common Interests (CCI) after the provinces have reached consensus.
The transport network will provide open access to distribution companies and any other private operator resulting from the increase in LNG imports. There are already a few distribution licensees. The transport company will not take title to the gas. It will only transport gas and will be paid for a transport fee to be set by the regulator for the transport of local gas to be sold by the provincial distribution companies and LNG imported by the private operators to their dedicated consumers.
The gas companies would have a sort of postage stamp tariff, ie based on the gas transported and the revenue requirement. This will allow a buyer to contract with a supplier using NGTC’s transmission network for a transmission fee. Large consumers would be free to choose their preferred supplier, and the mechanism would promote competition and transparency in cost allocation among LNG importers.
New model designed by consultants under World Bank assistance suggests that customers, wherever they are on the grid, should get gas with security of supply and viability and sustainability improvements in the sector while remaining within the limits of the constitutional provisions concerning the supply of national gas resources.
Posted in Dawn, August 9, 2022