I am indebted to my sponsor DS Javaid Iqbal Sb who not only guided me but also clarified certain concepts.
Sequence of presentation would be that I ll first highlight the issue at hand; its brief details; how and when it began; a holistic picture of the issue; associated problems; analysis of the present situation; results obtained so far and based on those results the future scenarios, followed by Conclusion substantiated by certain Studies carried out. I ll then present few recommendations and then of course Q&As
Now that refers to the Catch 22 situation whereby the Govt either cannot or is not able to avoid the problem because of contradictory constraints. These are such situations in which solving one part of the problem only creates another problem which ultimately leads back to the original problem. In Persian its Na jayeraftan, napaye Mandan !This term was coined by Joseph Heller in his novel catch 22
The short timeframe given for the presentation made me source more from the reading material and less from the interaction with concerned stakeholders. Nonetheless the sources are …..
Gas is not found on large scales as that of Oil… only 90 countries of the world have proven reserves of gas and only 5 countries like Russia, Iran, Qatar, Turkmenistan and USA account for 60% of the world’s proven reserves.Use of Natural Gas are many since its popular use from 1930s onwards…Heating, Electricity, as a chemical feedstock in the manufacturing of plastics and other commercially important organic chemicals (i.e. ammonia, urea, phosphates, Teflon, etc.). Natural gas is also used in the manufacturing processof fabrics, glass, steel, paint etc.No uniform international natural gas prices – The price of natural gas varies greatly depending on location, type of gas and nature of end consumer.
This map shows details of major gas fields (more than 100), pipeline network of SSGC and SNGPL.
Power ; General Industry; Domestic, Fertilizer, Transport followed by Commercial. Ideally this distribution should ve been other way round with more gas allocation to the industry rather than domestic or even transport.The above includes about 800 MMCFD gas supply to Power and Fertilizer sectors directly from Mari, Kandhkot and Uch gas field.
If we continue with existing rate of consumption showing on average 6% increase per annum, our local gas resources will be depleted by 2022-23 if we do not explore more sites and/or import gas. Our Demand Supply gap……. This projection includes IP, TAPI Gas pipelines and import of LNG from Qatar.
These sources will be CRUCIAL to our economic survival. SNG is Synthetic Natural Gas as a substitute for natural gas…
Before 2005 there was no policy for according priority to gas allocation for various sectors.. It was arbitrary in nature and haphazard… Gas Sales AgreementsWhen there is a huge demand of power and people feel that generating electricity is cheaper than purchasing it, captive power plants are made.
Aik ANAR 100 Bemaar !
Industry Bias is evident from the Gas Sale prices structure ! Cess is levied under Gas infrastructure Development Cess Act 2011.
Besides committed gas supply to the power sector, in the aftermath of worst energy crises during early this year led to the holding of Energy Conference…. All stakeholders and Provinces were present….. Despite strong reservations of MPNR, it acted upon the decision….
Although final data and statistics are yet to be released for showing any Improvement in Electricity generation from additional 207mmcfd by diversion from Fertilizer sector, yet we do have some provisional figures which show slight improvement in e generation and lesser imports of furnace oil from May-Sept 2012. However on the other side, our fertilizer industry is facing severe problems and is now on the verge of bankruptcy as informed by the fertilizer sector ppl… APTMA is also raising hue n cry as they r short of gas for their cpps… the industrial production related to gas have also made complaints to MPNR.
A leveraged industry is the one which has the largest debt to equity ratio…
Theses are the issues which we need to keep in mind while discussing the gas allocation strategy !
UFG is Unaccounted For GAS; this is the difference between gas sales billed and gas sendout
The actual results of the instant issue of diversion are yet to be computed and analysed, however, Last year Energy Wing of the PC in collaboration with ….. Carried out a study with the aim to determine the economic evaluation of natural gas use. The purpose was to examine the economic impacts of changing gas priority betwn fertilizer feedstock and power generation…
Even the 207 mmcfd allocated gas could not be used fully by the power plants on account of their inefficiency…Why I put these recommendations in concentric circles is the need to adopt these as a package and not by piecemeal. It wont be of any use if either one or 2 are adopted and rest are overlooked; these all are interlinked and can be effective only if adopted in toto.
Gas for Power Generation or for Industry - A case for Pakistan
In the name of Allah, The Most Beneficent, The Most Merciful 1
NATIONAL INSTITUTE OF MANAGEMENT, ISLAMABAD 14th Mid Career Management Course Current Issue Presentation on Impact of Diversion of Gas from Industrial to Power SectorPresented by: Bilal Khan Pasha, Commerce & Trade GroupSponsor DS: Mr. Javaid IqbalNovember 28, 2012 2
Sequence of Presentationo Statement of Problemo Introduction & Genesis of Issue at hando Broad Contours of the Issueo Problems & Challengeso Analysiso Results & Future Scenarioo Conclusiono Recommendationso Questions & Answers 3
Statement of ProblemThe diversion of precious and scarce natural Gas resource from Industrial to Power Sector in Pakistan has resulted in the emergence of sharp divisions amongst Power Producers,Industries and Consumers – A case of Catch-22 for the Federal Government 4
Sources for Presentationo Economic Survey of Pakistan 2011-12o Pakistan Energy Year Book 2011-12o Ministry of Petroleum & Natural Resourceso Ministry of Industrieso Ministry of Production 5
Sources for Presentationo Planning Divisiono Oil & Gas Regulatory Authority (OGRA)o All Pakistan Textile Mills Association (APTMA)o Karachi Electricity Supply Company (KESC)o International Energy Agency (IEA) 6
Natural Gas in Pakistan – Brief Factso Natural Gas – Gift of Nature & Precious Resourceo Use of Natural Gaso According to IEA, global natural gas proven reserves are 300 trillion cubic meterso Pakistan has proven reserves of 840 billion cubic meters (28 TCF) with an Annual Consumption of 40 billion cubic meters (1.3 TCF)o No uniform international natural gas prices 7
Pakistan’s Primary Energy Supplies 2011-12 65 Million TOE Natural Gas Value of Natural Gas: $4.3 50.5% billion (4 BCFD) Value of Coal Local: $ 0.2 billion Imported: $ 0.5 billon Coal 6.3%Value of Local Crude: $2.4 billion(67,000 Barrel/Day) ElectricityOil Import Bill: $14.5 billion Oil 12.5%(36% of total imports) 30.7%(380,000 barrels/Day) Source: Economic Survey of Pakistan 2011-12 8
Pakistan’s Natural Gas Infrastructure PeshawarConsumers: 6.7 Million (1.6 million)Transmission Network: 11,045 Km (879Km) IslamabadDistribution Network: 128,758 Km (38,828 Km)No. of Cities/Towns on gas: 307No. of Villages on gas: 4,989 Lahore Faisalabad Quetta Multan Sui AC1X-SUI GAS FIELDS (156) Sukkur SSGC LINES SNGPL LINES COMPRESSOR STATIONS (17) Source: Ministry of MAJOR LOAD Karachi Petroleum & Natural 9 Resources CENTRE (5)
Province Wise Gas Supply and Consumption (2011-12) 10 MMCFD Gas Supply: 3,862 MMCFD Gas Consumption: 3,511 MMCFD Punjab 182 5% Baloch. [CATEGBaloch. 242 ORY KPK 667 360 7% NAME], [ 18% 9% VALUE], 43.6% Sind, [V ALUE], 4 KPK 4.5% 175 Sind, [VAL 5% UE], [PERC ENTAGE] Source: MPNR 10
Province Wise Gas Supply and Consumption (2011-12) 11 Gas Supply Gas ConsumptionProvince MMCFD % share MMCFD % share Punjab 182 4.7 % 1531 43.6 % KPK 362 9.4 % 175 5.0 % Sind 2649 68.6 % 1563 44.5 % Baloch. 669 17.3 % 242 6.9 % Total 3862 100 % 3511 100 % Source: MPNR 11
Province Wise Gas Consumers12 as on 30.06.2012 SNGPL SSGCL Province / Type Punjab KPK Sindh Balochistan TotalDomestic 3,594,937 516,871 2,239,731 223,853 6,575,392Commercial 47,149 8,757 22,296 2,200 80,402Industrial 5,798 830 4,077 56 10,761 Total 3,647,884 526,458 2,266,104 226,109 6,666,555 Source: MPNR 12
Gas Allocation and Management Policy, 2005S.No Category of Consumers Priority 1. Domestic and Commercial Sectors First I) Fertilizer Sector; and 2. Second II) Industrial Sector to the extent of their process gas Independent Power Plants as well as WAPDA and KESC’s 3. Third Power Plants having firm gas supply commitment under GSAs General Industrial, CNG Sector and Captive Power Producers 4. Fourth of export oriented Textile Industry I) WAPDA’s and KESC Power Plants other than those listed 5. against S.no. 3 above Fifth II) Captive Power Sector 6. Cement Sector Sixth There is no gas load management in Khyber Pakhtoonkhwa and Balochistan 16
Current Load ManagementPresently, following curtailment policy is being observed:-• Two gas holidays per week are being observed by Industrial Sector• Three gas holidays per week are being observed by CNG sector• No curtailment in any sector in KPK in light of decision ofPeshawar High Court under Article 158 of the Constitution• No curtailment in the Domestic and Commercial sectors 17
Why the Use of Gas So Desirable ? Industry incl. Fertilizer Feedstock for manufacturing Only raw material for production Optimal use of scarcePower Sector resource Domestic Consumers Cheap fuel Uninterrupted powerAssured Supplies Cheap fuel for heating & transportation Natural Gas 18
Gas Sale Prices Effective from July 1, 2012 FinalA. Domestic Sector Monthly consumption Level Sale Prices Cess Price Slab Cubic Meter MMBTU Rs/MMBTU Rs/MMBTU 1st 0-100 0 - 3.5494 100 - 100 2nd 101-300 3.5495 - 10.6482 200 - 200 3rd 301-500 10.6483 - 17.747 500 - 500 501-700 17.7471 - 24.8458 500 - 500 Bulk Domestic 500 - 500B. Commercial Consumer 600 - 600C. Industry including Captive 460 50 510D. Power (WAPDA/KESC) 460 100 560E. Independent Power Plants (IPPs) 460 100 560F. Cement 700 - 700G. CNG Zone-1 (KPK, Baluchistan & Potohar Region 618.5 263.6 882.1 Zone-2 (Sindh & Punjab (Excluding Potohar)) 618.5 200 818.5H. Fertilizer-Feed Stock Old Plants 116.3 197 313.3 New Plants/Addl. Volume for BMR 60.7 - 60.7I. Direct Sales to WAPDA Kandhkot/Sara/Sui/Mari to Guddu 460 100 560 19 Source: OGRA
Diversion of Gas from Industrial to Power Sector • Gas is being supplied to Power Sector as per commitments of gas supply agreements. • During Energy Conference held in April 2012, it was decided to divert 207 mmcfd gas to Power Sector till September 2012 to address the severe electricity shortfall during summer. • The gas was diverted from Fertilizer Industry from SNGPL system. • However, the general Industry has agreement of gas supplies on nine months basis and will run on alternate fuels during winters. 20
Impact of Diversion of Gas from Industrial to Power Sector Power Industrial Sector Sector 21
Impact of Diversion of Gas from Industrial to Power Sector • Depleting gas • Lack of committed • 90% industry Fertilizer Industry allocation (504 to gas supply causing dependent on CPP Textile IndustryPower Sector 337 BCF) huge production • $ 14 billion • Higher losses (2.7 million exports in 2011-12 dependence on tons) • Gas cuts causing imported furnace • Import of 30% redundant oil ($ 7 billion) fertilizers (Rs. 140 production • High cost of billion) capacity electricity & tariffs • A highly leveraged • 15 million (Rs. 16/- per unit) industry (Rs. 150 employed workers • Circular debt (Rs. billion) 300 billion +) 22
Issues in Gas Sector• Natural decline in production of existing fields• Heavy reliance on gas because of policy distortion• Delays in import projects – LNG, IP, LPG• Delays in linking new discovered fields with the supply network• Massive and uneconomic expansion of distribution network in domestic sector 23
Issues in Gas Sector• Unattractive economic and financial returns for the exploration companies• Pricing of competing fuels• Theft, sabotage and UFG• Circular debt 24
Economic Evaluation of Natural Gas Use • International Resource Pakistan Group + Asian Development Integrated Energy Bank + Model Energy Wing of Planning Commission Model to examine the • Setting up economic reference scenario for impacts of studying the changing gas energy mix of Pakistan priority Gas has a higher economic value • Simulation, for fertilizer assessment production and conclusion compared to power sector 25
Recommendations Expediting Import of Gas & Gas Exploration No Gas Allocation to Inefficient Power Plants Performance Audit of SSGC & SNGPL viz-a-viz Gas Allocation Policy Strict Adherence to Prioritization of Gas Allocations 26
We need an all-inclusive policy thatrevitalizes every sector of the economy, not just a few individuals or industrialgroups. Fortunately, we have the solution to the present energy crisis. We only need our decision makers to take the right step now, before it is too late ! 27