As per latest media reports, the independent power producers (IPPs) have agreed with the government to purchase 265 million cubic feet per day (mmcfd) of imported Liquefied Natural Gas (LNG) for power production. It is worth examining use of LNG by the power sector, spending billions of annual dollars on a sector that is the main cause of circular debt in the country.
Engro Elengy Terminal Private Limited (ETPL), the company responsible for handling the import of LNG has built a jetty at Port Qasim, 24 kilo-meter long pipeline and has also leased a Floating Storage and Re-gasification Unit (FSRU) to convert liquid methane into gas.
ETPL has the capacity to manage 600-650 mmcfd of LNG. The Company was awarded the terminal contract on the basis of its lowest bid which was 66 cents per mmbtu tolling rate for 400 mmcfd LNG. However, the government will be liable to pay the capacity charges of $272,000/day if it fails to import LNG by 31st March 2015.
ETPL financed the LNG terminal, costing a total of US$ 133.3 million, with 25% of its own equity and 75% of debt from various sources. The company managed to receive US$30 million from Asian Development Bank, US$20 million from International Finance Corporation and US$50 million from local banks. The residual amount of US$33.3 million has been injected as company’s own equity.
The distribution channels of Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines (SNGPL) are being improved to transport imported LNG to the tune of 1.2 BCFD up to the mid-country areas in two phases. The approximate cost of first phase is about Rs31.36 billion which has been arranged through bank loan while about Rs102.43 billion will be required in the second phase.
According to SSGC officials, government initially plans to provide re-gasified LNG to large consumers like K-Electric, Engro Polymer, Gul Ahmed Energy and other manufacturing units located at Bin Qasim and Landhi industrial estates. The motivation behind this step is to evade the line losses, which exists in the pipeline system.
Recently, some of the major IPP’s have agreed to purchase 265mmcfd of imported LNG from the government. Orient, Saif, Sapphire and Hallmore will purchase 40mmcfd of LNG while Fuji Kabir Wala will purchase 20mmcfd and KAPCO will purchase 85mmcfd.
The government has formed an international project management holding company by the name of National Power Parks Management Company (Private Limited) to implement LNG-fired power projects of 1200MW capacity to be established in public sector with an investment of Rs380 billion from PSDP. It is estimated that the private sector will establish LNG-fired projects of 2,400MW.
According to the official sources, import of LNG will play a crucial part in reducing the energy shortfall of the country. It is pertinent to mention that the government has to strive continuously to reap the benefits of LNG import and fully utilize power generation capacity.
The cheaper source, in comparison to furnace oil, of energy will help the government to save US$1.00 billion per annum of its total oil import bill of US$15 billion per annum. Furthermore, LNG will also be beneficial for the local manufacturing sectors including textile, glass and ceramic, engineering and other industries. Resulting in the better utilization of idle capacity which would improve the economic growth going forward.