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ISLAMABAD, Nov 17: With gas shortfall estimated at 2.4 billion cubic feet per day (BCFD) in 2014-15, the ministry of industries has opposed allocation to the power sector of 750 million cubic feet per day (MMCFD) of natural gas planned to be imported from Iran, saying it should first be provided to industrial and fertiliser sectors to honour the existing contractual obligations by the government.
“All prior commitments with industry, including the fertiliser sector, should be met as per agreements/contractual obligations by the government. Thereafter, the gas which is 'uncommitted' be diverted to the power sector,” the ministry wrote to the Economic Coordination Committee of the cabinet.
The ministry said the government had contractual obligations to provide at least 240 MMCFD of gas to the fertiliser sector for at least nine months of the year, but it got 30 per cent lower supply in nine months despite the government's guarantee to ensure low cost fertiliser to agriculture.
In three winter months, gas supply to the fertiliser industry is further reduced to about 20-30 per cent. Likewise, some other industries, including those in the textile sector, have also suffered because of lower gas supplies, affecting export earnings.
According to latest estimates of the petroleum ministry, the gas shortfall against constrained demand in Sui Northern Gas Pipelines Limited (SNGPL) will increase to 1.872 BCFD in 2014-15 and that in the Sui Southern Gas Company Limited (SSGCL) system will go up to 513 MMCFD. The current shortfalls in SNGPL and SSGCL stand at 1,300 and 200 MMCFD, respectively.
According to the petroleum ministry, the gas shortfall against constrained demand in the power sector alone goes up to 700 MMCFD. Therefore, 725 MMCFD of gas to be available from Iran will hardly meet the power sector's demand. About 25 MMCFD will always remain in the Iran-Pakistan pipeline to maintain pressure.
Sources in the ministry of petroleum and natural resources said the ECC had turned down the request of the industries ministry because providing Iranian gas to the fertiliser sector would involve huge subsidies out of the public exchequer.
They said the sale price of the existing fertiliser plants ranged between $0.7 and $1.2 per million British Thermal Unit (MMBTU), compared to the cost of imported gas at about $10 per MMBTU at current crude prices in the international market.
Therefore, the supply of imported gas at highly-subsidised rates would not be prudent in view of the existing pricing regime involving cross-subsidisation.
The ECC's steering committee had decided in 2009 to dedicate the Iranian gas to the power sector. The surplus gas could be used to meet industrial and commercial demand.
“Since the ministries of water and power and finance and the Planning Commission have supported the allocation of Iranian gas to power sector, the ECC has overruled the demand of the industries ministry,” the sources said.
The ECC has also decided that the Iranian gas quantity originally contracted at 725 MMCFD and even if it increased at a later stage to 1000 MMCFD would be provided to SNGPL and SSGCL at 65:35 per cent basis. This will ensure additional supplies of about 470 MMCFD in SNGPL and 255 MMCFD in the SSGCL system.
The two gas companies will be required to supply imported gas to only efficient power plants. The plants will be selected by the ministry of water and power and after entering into back-to-back gas sales and purchase agreements with such power plants.
The power plants which fail to achieve 50-60 per cent efficiency and plant availability will be required to pay penalties about 50 per cent higher rate of the gas sale price to ensure optimal economic use of the imported gas.
Under the Iran-Pakistan Gas Sales and Purchase Agreement (GSPA), the first gas flows of about 35 per cent of the contracted quantities will be delivered in Nawabshah by Dec 31, 2014. The supplies have to go up to 65 per cent in the second year latest by Dec 31, 2015, while 100 per cent volume delivery will be ensured by the end of 2016.
The project agreement involves gas supplies for 25 years and quantities could subsequently be increased to two BCFD.
