My recent posts may lead fellow members to think that I am a supporter of Shahid Kkaqan Abbasi. Perish the thought. I always attempt to analyze the subject dispassionately and give my views as honestly as humanly possible.
After the new fuel sulphur limit in the marine fuel imposed by the International Marine Organization (IMO) comes into effect from January 2020, LNG is going to replace fuel oil/furnace oil as the primary fuel for the ships all over the world. Anyone who has endured the smog in Punjab will tell you how polluted Pakistan air has become.
This is why Mr Abbasi likes LNG. I am in complete agreement with him this regard.
Quote
LNG — The whole truth
by
Shahid Khaqan Abbasi , (Last Updated April 30, 2015)
It is the only cost-effective solution for Pakistan’s energy problems
Much has been recently written and said about Pakistan’s procurement of Liquefied Natural Gas (LNG) to meet its energy needs. Despite our best efforts to disseminate the facts through the print and electronic media, and parliamentary forums, several so-called energy experts and pseudo-intellectuals continue to raise unsubstantiated and irrational questions about the contribution of LNG to the future of Pakistan’s economy. Any doubts about LNG need to be laid to rest, and the people of Pakistan need to judge for themselves whether or not LNG is beneficial for Pakistan.
LNG is a game-changer and the only solution to Pakistan’s current energy shortages; the viability of Pakistan’s energy future in the short to medium term is directly linked to LNG. If Pakistan had committed to LNG 10 years back, we would not have any power or energy crisis today.
I have no hesitation in placing the FACTS about LNG on public record.
FACT 1: More than 50 per cent of Pakistan’s current total energy mix — including hydel, fossil fuel, nuclear, and renewables — is based on natural gas. Pakistan’s natural gas production has been stagnant at the 4,000 Million Cubic Feet per Day (MMCFD) level for over 10 years; new gas discoveries have barely kept pace with the natural depletion of existing gas fields.
FACT 2: Pakistan’s constrained demand for natural gas is 6,000 MMCFD against a supply of 4,000 MMCFD; the unconstrained demand for gas is estimated to be 8,000 MMCFD or more than double the current domestic production.
FACT 3: Pakistan, in addition to mobilising resources for increased domestic gas production, needs to IMPORT natural gas — either through transnational pipelines or LNG. Complex issues always have complicated solutions; with due respect to our so-called energy experts, noble causes such as biogas are not a viable solution to Pakistan’s vast energy needs.
FACT 4: The two transnational gas pipelines that Pakistan has pursued for over two decades have been delayed due to reasons beyond our control. The 750 MMCFD Iran-Pakistan (IP) gas pipeline has been delayed due to international sanctions although there is now hope for removal of the sanctions and we will be going ahead with the construction of the IP pipeline, while the gas from the IP pipeline is at least 30 months in the future. The 1,325 MMCFD Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline has been delayed due to the security situation in Afghanistan and structural issues with the project transaction; the first gas flow from the TAPI pipeline will take more than 48 months.
FACT 5: LNG import remains the ONLY solution to Pakistan’s gas and energy needs in the near future; the last 3 governments following an integrated approach where the LNG regasification terminal developer was also the LNG supplier, failed in five separate attempts in 10 years to import LNG into Pakistan.
FACT 6: The PML-N government using an unbundled approach, where the LNG regasification terminal was separated from LNG procurement, has succeeded in providing Pakistan with its first imported gas through LNG within the first 20 months of its tenure.
FACT 7: Pakistan’s private sector has built the world’s fastest LNG regasification terminal in a period of less than 11 months; the contract was signed after a completely transparent PPRA-compliant bid process on April 30, 2014, and the first LNG based gas flowed into the system on March 26, 2015.
FACT 8: The Fast Track LNG regasification terminal at Port Qasim was built in record time by Engro Elengy Terminals Limited (EETL), a 100 per cent Pakistani company, without any public funds and without a sovereign guarantee on a tolling fee based BOOT model.
SSGC has committed to regasification of 400 MMCFD or 3 Million Tonnes per Annum (MTPA) of LNG through this terminal; the contracted LNG regasification tolling fee of $0.66/MMBTU is one of the lowest in the world, especially for Floating Regasification and Storage Unit (FSRU) based terminals.
FACT 9: The negotiations under a PPRA-compliant Government-to-Government process for a long-term LNG supply contract between Pakistan State Oil (PSO) and Qatar Gas are in the final stages. Despite unsubstantiated and biased speculation to the contrary, the LNG price and several other terms affecting the LNG price are still under negotiation with Qatar Gas. The terms and flexibility in long-term LNG contracts are critical and PSO is committed to providing Pakistan with the best LNG contract price in Asia. The details of the LNG contract, once it is signed, will be made available on public forums as required under PPRA rules.
FACT 10: There is a fundamental difference between the oil market and the LNG market — oil is produced first and then sold; LNG is sold first and then produced. The expected LNG contract with Qatar is for a volume of 1.5 MTPA, or half of the current LNG regasification terminal’s committed capacity. The balance 1.5 MTPA is being sourced through other term contracts or spot procurement. Pakistan is expected to be a 12 MTPA LNG market within 5 years; the current LNG contract is less than 15 per cent of this amount. Globally, over 90 per cent of LNG procurement is done through negotiated term contracts as there is no reliable spot market for LNG.
FACT 11: Unlike oil, there is no international benchmark for LNG, although the US-based Henry Hub gas price may emerge as a LNG benchmark in the future. Most of the LNG contracts in the world today are priced at a direct linkage to oil, meaning that the per Million BTU (MMBTU) LNG price is a direct percentage of an oil benchmark. As an example, the LNG price at 15 per cent of a Brent index of $60 would be $9 per MMBTU plus a $ Constant for shipping charges and losses.
FACT 12: LNG prices are affected by supply and demand factors as any other commodity, but generally vary geographically and are based on the alternate fuel in a particular region. For example, in Asia LNG replaces fuel oil and is priced close to fuel oil prices; in Europe it competes with Russian or Norwegian pipeline gas and is priced accordingly; while in the US the competitive fuel is low price domestic shale-based gas making LNG imports impossible.
FACT 13: LNG price can be linked to any benchmark; however, it would be a very risky gamble to link Pakistan’s LNG imports to any benchmark except oil as we are replacing fuel oil usage in the country. A few months back it was very fashionable to talk about Henry Hub based LNG; today when the Henry Hub has diverged from global oil prices, the talk has fallen silent. We cannot afford to gamble on our energy future by linking our LNG procurement to temporary fads.
FACT 14: The current 400 MMCFD of Regasified LNG (RLNG) will be provided to the power sector; in this context, LNG with a notional Brent linkage of 14.5 per cent is 10 per cent cheaper than High Sulphur Furnace Oil (HSFO), 20 per cent cheaper than Low Sulphur Furnace Oil (LSFO), and half the price of diesel. In addition, as a fuel for power generation, LNG as compared to liquid fuels provides substantially greater efficiency, lower maintenance costs, no storage costs, ease of transportation, and no pilferage or adulteration issues.
FACT 15: The price of LNG has been the subject of much irrational and illogical comment, probably at the behest of certain vested interests. The cost of RLNG to the consumer has several elements including the landed cost of LNG, marketing company margin, port charges, regasification charges, and SSGC and SNGPL system usage charges, transmission and distribution losses. Energy cost calculations clearly prove that RLNG is cheaper than ALL other imported fuels for power generation in Pakistan. On April 27, 2015, the delivered price for fuel to power plants in Northern Pakistan on equivalent basis was $11.5/MMBTU for LNG, $ 12.6/MMBTU for HSFO, $ 13.8/MMBTU for LSFO, and $ 22.8/MMBTU for diesel.
FACT 16: The 400 MMCFD of RLNG from the EETL Terminal will be provided to Nine (9) gas-based Independent Power Plants (IPP) — KAPCO, Fauji Kabirwala, Rouche, Halmore, Orient, Saif Energy, Sapphire, Altern Energy, and Davis Energen — for replacement of diesel or LSFO consumption. This RLNG will allow these power plants to generate an additional 9 Billion KWh per annum, equivalent to an additional 10 per cent of total current annual power generation, without investment in any new generation capacity.
FACT 17: The 3 MTPA of LNG used to generate 400 MMCFD of RLNG will cost about $1.5 Billion (Rs 150 Billion) per annum at today’s Brent linkage; this RLNG will displace over $2.5 Billion (Rs 250 Billion) of Diesel and LSFO usage resulting in sustained annual SAVINGS of $1 Billion (Rs 100 Billion). These are large savings by any standards.
FACT 18: Natural gas is the most efficient fossil fuel for power generation; highest efficiency oil-fired power generation is about 46 per cent efficient, while gas-fired power generation efficiency today exceeds 61 per cent. The government is in the process of setting up 3,600 MW of RLNG-based power generation capacity which will generate 30 Billion KWh every year, or equal to 35 per cent of total current annual power generation. If this high efficiency RLNG-based power generation is used to replace current low efficiency oil-based power generation, the savings will exceed $2 billion (Rs 200 billion) per year.
FACT 19: The first LNG cargo, which unfortunately has been the target of much speculative comment, was carried on the FSRU on its maiden voyage to Pakistan; it was also used as the commissioning cargo for the LNG regasification terminal. This cargo with a value of over $30 million was procured by the private sector for use in fertilizer production, and is a landmark in the use of RLNG in the private sector. This underscores the importance and cost-effectiveness of RLNG as fertilizer feedstock and in other industrial uses. This procurement by the private sector has saved the public sector over $5 million in shipping and terminal commissioning costs, and ensured the ahead of schedule operation of Pakistan’s first LNG regasification terminal.
FACT 20: RLNG for power generation has a substantially lower environmental impact than all other fossil fuel based plants and it will greatly reduce the carbon footprint for Pakistan. This will also help mitigate the expected increase in carbon emissions from domestic and imported coal power plants that Pakistan is in the process of constructing to lower the cost of its power generation mix.
These facts are based on an in-depth analysis of Pakistan’s energy issues and the use of LNG as a viable solution for our energy challenges. The bottom line is simple — LNG is the only cost-effective solution for Pakistan’s energy problems in the short to medium term perspective.
Shahid Khaqan Abbasi
The writer is Federal Minister for Petroleum and Natural Resources. Unquote.
https://www.pakistantoday.com.pk/2015/04/30/lng-the-whole-truth/
In my opinion, Shahid Khaqan's decision to replace furnace oil by LNG was a right one as from all points of view LNG is a cheaper option and far better for the environment but it was also taken without due safeguards for Pakistan’s refinery sector. For example:
Quote
- Oil
- 30 Nov 2018 | 08:17 UTC
- Karachi
Analysis: Pakistan oil refineries fear shutdown on rising fuel oil stocks
Karachi — Pakistan oil refineries have warned the ministry of energy that rising fuel oil inventories, driven by the government's shift to LNG-based power generation, could result in imminent refining shutdowns and a nation-wide shortage of other oil products, especially gasoline and jet fuel.
Fuel oil supply chain disruptions are certainly not new to Pakistan. An abrupt decrease in fuel oil orders from power plants in late 2017 led to a rapid rise in stocks at import terminals and domestic refineries, delaying deliveries of imported cargoes and disrupting operations of domestic producers.
Consumption is unlikely to recover, as the electricity feedstock landscape continues its switch to gas facilitated by exponential growth in LNG imports, which are expected to increase from 4.9 million mt of LNG in 2017 to nearly 24 million mt/year by 2023, according to S&P Global Platts Analytics.
So far this year, the situation has forced refiners to lower throughput to an average of 60-70%, and could result in imminent shutdowns within the next 10-15 days, according to separate letters sent by the Oil Companies Advisory Council, Pak Arab Refinery (Parco), Attock Refinery, National Refinery and Pakistan Refinery to the ministry of energy in late November.
Refiners have proposed a minimum mandatory offtake of 10,000 mt/day of fuel oil by the country's oil marketing companies, versus an average demand of 3,285 mt/day over the period November 1-21, 2018.
GLUT WORSENED BY IMPORTS
The supply glut has been worsened by fuel oil imports, despite a new energy committee, headed by the minister for energy, having been constituted a year ago, to approve fuel oil imports and monitor output from domestic refineries. Unquote.
https://www.spglobal.com/platts/en/...eries-fear-shutdown-on-rising-fuel-oil-stocks
In my humble opinion the best article about LNG contract was written by Khaleeq Kiyani in the Dawn of Oct 22, 2018.
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Let’s ask questions about our LNG deals
Khaleeq KianiUpdated October 22, 2018
LAUNCHING investigations against investors is a double-edged sword. It ruins the country’s image, shatters investor confidence and scares away fresh investment. Yet this can be politically rewarding when the target is a high value political opponent. The PTI government has asked LNG terminal operators to revisit contracts or face accountability.
We have had the bitter experience of launching a campaign against Independent Power Producers (IPPs) set up under the 1994 policy. The questions at the time were serious and almost the same— exorbitant returns, higher than required plants and a capacity trap along with sustainability and affordability issues — as we currently face in power plants and LNG terminals.
At the time we did not consider that all these issues are related to economic growth. Higher growth can absorb most of the above challenges, if not all, but a slowdown can be destructive. The most expensive cost is that of the energy that we won’t have when it is needed. Economic growth fell in the late 90s after the IPPs and it is faltering again now after LNG and CPEC power plants.
The PML-N went on an energy plant spree without keeping an eye on the looming economic slowdown and the PTI is bent upon opening LNG deals and questioning power plants in an attempt to smash its political opponent — the PML-N
There are no two opinions making the rounds: the first that apart from efficiency gains and environmental benefits, LNG is much cheaper than furnace oil when running power plants. The saving from one terminal running beyond 90 per cent capacity utilisation could be as high as $1.5 billion (almost Rs200bn at the current exchange rate) a year. The latest cost of a unit of electricity produced from LNG plants in Pakistan stood Rs9.9 in September compared to Rs15.6 on furnace oil.
Notwithstanding the benefits, former prime minister Shahid Khaqan Abbasi and his team should blame themselves for pushing through systems and procedures that compromised transparency and led to the current controversies. But then they also owe a clarification regarding why one bidder for the LNG terminal was first better qualified for the first bid that was cancelled, then disqualified to bid when a single bid was accepted, and then again qualified and allowed to win in the second round.
They need to explain what led to the terminations or resignations of at least the top five heads of energy sector entities in the run up to the operationalisation of the LNG supply chain. This entire chain is now crumbling under unprecedented circular debt.
The heads that rolled included former managing director of SNGPL Arif Hameed, former chief executive of Central Power Purchasing Agency Muhammad Amjad, head of PPIB’s legal department Barrister Asghar Khan and Chairman Board of Directors of Interstate Gas Company (ISGS) Nawabzada Shahzad Khan.
This question gains more importance as the contracts for LNG imports, supplies and terminals were being negotiated and finalised by ISGS on behalf of SNGPL, SSGCL and Pakistan State Oil.
An explanation is also needed regarding why then finance minister Ishaq Dar, as head of the ECC, rejected approving LNG contracts of PSO multiple times, and why the rules were changed to first describe LNG as a petroleum product and then again to define it as gas.
On top of it all, there is no sustainable transactional structure in place, even today, among various LNG supply chain players. LNG importers and sellers are struggling for demand from the power sector.
There is still no fallback arrangement for winter LNG supplies when electricity demand plunges below 10,000 megawatts against 25,000MW in peak summer, rendering most of the expensive thermal plants closed with guaranteed capacity payments.
It seems we are still not ready to learn from the episode. Investors introduced clauses in contracts that require arbitration abroad in case of dispute and secured revolving funds for guaranteed payments without waiting for recoveries from consumers that are always short.
The PML-N went on an energy plant spree without keeping an eye on the looming economic slowdown and the PTI is bent upon opening LNG deals and questioning power plants day in and day out in an attempt to smash its political opponent — the PML-N.
The 1994 power policy and the investigations in the aftermath sent shock waves among the investor community who, having come into the sector one at a time flew out in a flock. We secured next to nothing in savings.
Hubco’s main sponsor Xenel Corporation from our closet friend Saudi Arabia was the first to go and now, three decades later, we are again trying our best to get some riyals to support an oil refinery. National Power of UK, Xenel’s partner, was the next to leave so that now there are hardly any British investors in energy sector.
Many others kept flowing out after wasting money over the years as the then Wapda chief insisted on hydropower projects at 3.3 cents against a government policy offering 4.7 cents against sovereign guarantees.
In fact, various governments and authorities failed to pull any investor worth their name from abroad for almost two decades as, in 2002, energy shortages started to reappear and bids were called.
Meanwhile the authorities in the energy sector, notably the Private Power and Infrastructure Board, kept filing notes to both the Musharraf and PPP governments that first class investors from Europe and US were not showing up during bidding, hence the need for government-to-government deals with second grade investors as shortages crippled the economy.
Hence the investments from Qatar and China in power and LNG supply on a government- to- government basis.
Mr Saifur Rehman, who haunted the IPPs in the late 90s, is one of the key players now in both Power and LNG. In political point scoring, the authorities and investigators need to be cautious not to disturb diplomatic and business relations with a friend — Qatar — not even at the call of another friend.
Published
in Dawn, The Business and Finance Weekly, October 22nd,
Unquote
https://www.dawn.com/news/1440543
In my view, gas/LNG is a vitally important subject for Pakistan’ economy and in addition to the LNG/gas import, GOP should triple her efforts in the exploration & exploiting the natural gas as well as tight gas in Pakistan.
I have tried to clarify the situation to the best my ability. I have nothing more to say on this subject.
