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Natural gas consumers likely to bear some cost of LPG plants

October 15, 2017 5:21 AM
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Natural gas consumers likely to bear some cost of LPG plants

ISLAMABAD: The government is planning to put an additional burden on natural gas consumers by recovering some cost of 60 liquefied petroleum gas (LPG) air-mix plants that will be set up to meet the needs of people in far-off and hilly areas of the country, officials say.

Of the 60 plants, which are considered expensive, the impact of weighted average cost has been estimated at Rs7.21 per million British thermal units (mmbtu) for 27 projects to be developed by Sui Southern Gas Company (SSGC) and Rs13.1 per mmbtu for 24 projects of Sui Northern Gas Pipelines Limited.

These public gas utilities have proposed addition of nine more air-mix plants with the same tariffs. The Economic Coordination Committee (ECC) of the cabinet has already given blanket approval for 30 LPG air-mix plants.

Now, in a fresh proposal, the Petroleum Division is seeking tariff approval for 60 plants whose total cost has been estimated at Rs31 billion.

According to officials, the government had earlier planned to set up 30 air-mix plants with the assistance of gas utilities in Murree, Gilgit and other hilly areas in the north and Azad Jammu and Kashmir (AJK) where the laying of natural gas distribution network was not considered economically feasible.

These areas have a sizeable number of domestic and commercial gas consumers who burn wood to meet their cooking and heating needs, which in turn causes rapid deforestation in the country.

According to officials aware of the developments, comprehensive site surveys have been conducted to select potential points for establishing the air-mix plants.

Pakistan faces an acute shortage of natural gas both for electricity generation and general consumption. Domestic production stands stagnant at 4 billion cubic feet per day (bcfd), which cannot meet growing demand as the gap widens to around 4bcfd at the time of peak demand.

The energy scarcity is not only causing hardships for the common people, but is also slowing down economic growth. To tackle the challenge, the government is working on a plan to provide gas through LPG air-mix plants to the areas where piped gas is not available.

During the tenure of previous Pakistan Peoples Party (PPP)-led government, the air-mix plants were approved at a sharply higher tariff which sparked controversy.

At that time, the Oil and Gas Regulatory Authority (Ogra) estimated that LPG air-mix could be injected into the SSGC network at a cost of $25 per mmbtu as LPG prices were high.

The PPP government planned to calculate LPG prices on a weighted average basis and as a result all consumers, except for domestic consumers, were expected to face a price hike of up to 9.9% with the injection of 50 million cubic feet of LPG air-mix per day as approved by the ECC.

However, now LPG prices have come down and the government is going to regulate the market to make the commodity affordable for the consumers. Therefore, officials suggest, it will be feasible to inject LPG into the pipeline network of gas utilities when prices stand lower.

In the past, Ogra had opposed the scheme, arguing that air-mix plants would trigger a sharp rise in gas prices for the end-consumers. It, however, insisted that to protect the consumers, the air-mix plants should work as standalone projects and be not made part of the larger system.


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