• Deal on Reko Diq at advanced stage
• Setting up of a $10bn refinery under consideration

ISLAMABAD: The government has decided in principle to create a blended gas pricing mechanism by abolishing the ring-fenced Liquefied Natural Gas (LNG) pricing and merging it with wellhead and pipeline quality natural gases to scale down power rates and provide a level playing field to all consumer categories.

This was stated by Minister for Petroleum Dr Musadik Malik while talking to journalists. He said the government was at an advanced stage of striking an investment deal on the Reko Diq project and would reach a decision soon on the setting up of a greenfield refinery worth over $10 billion for production of petroleum products and petrochemicals on the 50:50 basis.

Surprisingly, the minister said he was unaware of a high-speed diesel crisis which has brought the country’s refineries on the verge of closure and forced the Pakistan State Oil (PSO) to cancel its import orders under long-term contracts owing to issuance of special import orders to “a specific market player at the cost of foreign exchange loss to the nation”.

Dr Musadik Malik, however, promised that he would investigate the matter and get back to the media soon.

The oil industry, particularly refineries and OMCs, have been protesting for many months against the Oil and Gas Regulatory Authority’s (Ogra) decision to allow one particular oil company to import massive stocks of HSD.

This had resulted in accumulation of huge stocks at local refineries.

The minister said a lacuna in rules for LNG imports and its ring-fenced supply and pricing to the power sector had created a lot of problems. He said the four LNG-based power projects were efficient, but remained closed for long because of their ring-fenced LNG pricing.

At LNG prices, these four projects of 5200mw produced electricity at Rs20-24 per unit compared to Rs8-10 per unit if they consumed natural gas.

The blended price for both LNG and natural gas could help generate electricity from these plants at about Rs14-15, which could be a big relief.

Musadik Malik said the wellhead gas price was around Rs570-580 per unit, compared to about Rs1600 per unit of pipeline quality gas and about Rs3500 per unit of LNG price.

The average per unit for the blend of three sources would work out at about Rs1700-1800 per unit which could be provided to all economic sectors and then government could also provide subsidy to the poor residential sectors.

He said the plan would be finalised in a couple of months for implementation to provide level playing field to all sectors.

In reply to a question, he said the government was importing about 1000 million cubic feet of LNG per day (mmcfd) and there would be no shortage or supply problem during winter.

Mr Malik ruled out an increase in gas price.

Iran-Pakistan pipeline

The minister refused to comment on a question about progress on the Iran-Pakistan gas pipeline project and purported warning from Iran that it would go for international arbitration over Pakistan’s inability to develop infrastructure to receive Iranian gas. But he dismissed as baseless speculations that potential penalties could amount to $18 billion.

He said the government was working on plans to attract billions of dollars investment not only from Saudi Arabia but also from China and others for setting up a greenfield refinery in Pakistan.

The minister said studies were being conducted on project transition from petroleum products to electrification and electric vehicles.

Musadik Malik said the government had commissioned a report on greenfield refinery to determine whether it should be crude-to-petroleum or crude-to-petrochemicals or a combination of both on 50:50 basis.

After submission of the report, the government would expedite work on setting up a new refinery, he said.

Asked about Saudi Arabia’s potential investment in Reko Diq project, he declined to name the country because of a non-disclosure agreement, but said the government was in talks with financiers to generate funds for the execution of Reko Diq project.

About solar power, the minister said the country had space for grid and rooftop projects. “I am working on a report about ways to encourage space and water heating to shift to electricity from natural gas.”

Published in Dawn, September 5th, 2024