Overcoming electricity shortage through LNG imports


Interview with Engro Vopak Terminal and Elengy Terminal CEO Syed Mohammad Ali

The federal government is considering converting its inoperative electricity generation plants running on High Speed Diesel (HSD) or Furnace Oil in Sindh and Punjab to Liquefied Natural Gas (LNG) to boost power generation capacity, said Engro Vopak Terminal Ltd and Elengy Terminal Pakistan Ltd Chief Executive Officer (CEO) Syed Mohammad Ali in an exclusive interview with Pakistan Today.

Most of the big electricity plants with diesel/LSFO/HSFO as backup fuel in Punjab including SAF, Orient, Hallmore, Sapphire, Kot Addu Power Company Limited (KAPCO), Rousch (Pakistan) Power Limited (RPPL) and Fauji Kabirwala Power Company Ltd (FKPCL) were not producing electricity at full capacity because of gas shortage or expensive alternative fuel rates for many years.

“The initial plan of the government is to run the inoperative electricity plants at their full capacity through imported LNG, which can easily be provided to these plants through Sui Southern Gas Company (SSGC) or Sui Northern Gas Pipeline Limited (SNGPL) at cheap rates,” Ali said, and added that these power plants can make electricity at half the cost of HSD or other fuels.

He said if these plants started functioning at their full capacity, over 2,000MW of electricity would be added to the system.

In 2014-15, 2.8 million tonnes of HSD was imported. On any given day, diesel (HSD) is also more expensive than LNG, he said.

“LNG remains a cheaper option from a cost-to-economy perspective,” he said. “LNG when compared with HSFO is more efficient in power generation, leading to lower operational, management and transportation costs,” he added.

According to some estimates, the CEO said, Pakistan is expected to save $1 billion to $1.5 billion per year by importing 1 bcf of LNG and replacing LPG, HSD, LSFO and HSFO.

He said that the LNG terminal constructed by Engro (Pvt) under the current arrangement with SSGC is transferring around 200 million metric cubic feet/day (mmcfd) of gas into the system.

The total supply demand gap of gas in the country is 2 billion cubic feet (bcf), and it is continuously rising.

Replying to a question, Ali said, “the LNG business can give benefits of more than $2 billion to our economy.” He said that LNG import was necessary and an important requirement for the country.

Ali told Pakistan Today that natural gas production in the country per day is approximately 4 bcf against accumulated demand of more than 6 bcf. “The solution to the electricity shortfall lies in liquefied natural gas (LNG),” he said.

“The Engro Terminal, which is a completely new venture for Engro, is already observing a capacity utilisation of 80 percent and it would likely cross 100 percent by the end of the year,” Ali said. “We are still working on different things and we might be handling private cargo and expanding the capacity of our terminal in future. But it is all quite premature at the moment,” he continued.

Ali said that the LNG business is quite promising due to an ever-increasing gap in gas supply and demand and limited options.

The latest Economic Survey of Pakistan said the country’s gas demand-supply gap would be above four billion cubic feet/day (bcfd) in the next few years.

Domestic sector tends to overcome natural gas shortage by using LPG or kerosene as substitutes. But both fuels are unsafe and expensive, Ali said.

For power sector, he said, LNG is a cost-effective option, which is more efficient in power generation with lower operational, maintenance and transportation costs than other fuels.

Engro Elengy commissioned the floating storage re-gasification unit with a capacity of 600 mmcfd in early 2015, which became operational in record time.

The government signed a contract with the ETPL to supply 200 mmcfd in the first year and 400 mmcfd for the subsequent 14 years.

Ali said that as per their contract with the government, they would process 1.5 million tonnes of liquefied gas in the first year, of which 38 billion cubic feet had already been pumped into the system.

“The success of the ETPL project will benchmark all future projects in the country in terms of quality, service and competitiveness,” the ETPL CEO said.

With depleting gas reserves in the country, two billion cubic feet gas shortage leads to hours long load-shedding of gas, long queues at CNG stations and gas cuts to fertilizer plants, he said.

He said that Pakistan would save as much as $1.5 billion by immediately initiating the already delayed imports of LNG.

This would also lower the average cost of power generation by Rs 2.50-3.50 per unit if diesel and furnace oil run thermal plants are fueled with LNG or local gas in the next five years.

The government called for bids for the fast track LNG tender on tolling basis only, to which two domestic parties responded – ETPL and Pakistan GasPort Limited (PGPL). The government is aiming for the terminal to be set up within 11 months.

Excellarate, the Floating Storage and Regasification Unit (FSRU), docked at EETL jetty on March 26, through safe handling of 14 LNG cargos approximately 0.8 million ton of LNG offloaded at EETL jetty leading to an injection of approximately 38 billion cubic feet of gas into the national grid.

Ali said that so far 14 LNG cargoes had been regasified at the LNG terminal. The one-year contractual commitment was 24 cargoes, but the number could go up in one year to 26 cargoes, he said.

Engro provided FSRU for bringing the initial six cargos, resulting in a saving of approximately $2.6 million. In another successful first for Engro and Pakistan, Ship to Ship (STS) transfer of LNG was successfully conducted on July 17. Till date, eight STS operations have been performed.

The ETPL tolling price for importing LNG is $0.66 per mmbtu, which is an extremely low price relative to international benchmarks. It is the cheapest rates compared to world tariff.

In Indonesia, tolling price is $1.8 per mmbtu for handling LNG at a floating terminal and $1.2 per mmbtu for a land terminal.

Average tolling price (based on 2010 rates) in North America was $0.73 per mmbtu, $0.87 in China, $0.81 in Europe, $0.89 in South Korea and Japan and $0.72 in the Middle East. This cross section analysis shows that ETPL’s price is extremely competitive and reflects ETPL’s focus on ensuring affordable LNG to the nation, Ali claimed.

He said that the government would have to pay levelized tariff of the company of $220,000 per day in the first year against the company’s investment, whether the plant is being used or not, which he said was similar to the way other power companies operate. The company will charge $219,000 per day levelized charges for the next 15 years. He further said that terminal tariff isn’t evaluated on the basis of per day capacity charge but on $/mmbtu which is the cheapest in the region.

He said that a big portion of this amount is also being given to SSGC.

He said that each consumer would have to bear their own burden while consuming LNG and the burden would not be shifted to any other sector.

IFC, a member of the World Bank Group, is making an equity investment in ETPL for Pakistan’s first Liquefied Natural Gas (LNG) import terminal to help address the country’s severe energy crisis, Ali said.

He said that previous governments made several attempts over the last 10 years to import LNG but they failed to do so.

With an unbundling formula, the federal government has now started importing gas, and the quantity will continue increase, he said.

He said the government is going to float a tender for building of another LNG terminal at Port Qasim in the next few months.

The PML-N government took a pragmatic step and the LNG terminal development was separated from LNG procurement. The LNG deal which is going to be signed with Qatar government is good and at best price in the region.

He said the government’s step to import LNG on behalf of the owners of CNG stations would be a good deal and that Pakistan State Oil (PSO) can easily handle it on behalf of the federal government. Owners will pay the money to PSO and it will import gas and pump it into the system.

He said that LNG was a game-changer and the 400 mmcfd terminal would add five per cent to the country’s primary energy mix.

He said that Engro built the SSGC LNG re-gasification terminal in record time as the contract was signed in April 2014 and the first gas flow was ensured in March this year.

Iran-Pakistan pipeline, which the country was eying to fulfill its energy needs, was delayed due to international sanctions and the first gas supply would not be available before the end of 2017.

In addition, Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline with 1,325 mmcfd also got delayed due to instability in Afghanistan and structural issues with the project transaction, which meant that gas imports through this pipeline would not materialise before end-2019.

Ali said that Engro’s first electricity generation plant ‘Thar Coal Power Plant” would be functional by 2018 through which the country would get 660MW electricity at cheap rates. This would also be a game changer for the country in the power sector, he said.

“I am looking forward to a bright future for LNG business in Pakistan,” Ali said. “The government should take all the steps to enhance the capacity,” he concluded.