A policy framework for the LNG sector | Political economics


Akistan has a diversified energy portfolio, with gas playing a major role. Gas consumption accounted for the largest share of energy supply with approximately 53% of annual consumption in 2018-2019. Electricity with a share of 35%, households with 21%, industry with 17% and fertilizers with 16% are the main consumption sectors. Pakistan produces around 4 billion cubic feet per day (Bcfd) of natural gas against a demand of over 6 Bcfd. According to one estimate, it has about 12 years of gas left at current consumption levels. The rapid depletion of gas reserves has led to an increase in liquefied natural gas (LNG) imports since 2015. According to industry analysts, excessive government subsidies to the household and fertilizer sectors and gross underpricing of natural gas for these sectors have resulted in excessive consumption and waste. .

The gas sector in Pakistan involves a range of actors, institutions, policies and legislations. The legal regime surrounding gas has developed in response to emerging needs.

The very first piece of legislation, the Regulation of Mines and Oilfields and Mining Development (Government Control) Act 1948, (amended 1976) authorizes the competent departments of mines, oilfields and mining development throughout the Pakistan to establish rules for the grant or renewal of an exploration or prospecting license, including for the control of the production, storage and distribution of minerals and mineral oils as well as for the determination of prices at which minerals and mineral oils may be bought or sold. The law is implemented by two sets of rules; one set is applicable to onshore operations and another to offshore operations.

The Oil and Gas Regulatory Authority (OGRA) Order 2002 established the independent regulator to foster competition, increase private investment and ownership in the midstream and downstream industry; protect the public interest while respecting individual rights; and provide effective and efficient regulations for similar matters. OGRA has the authority to determine RLNG prices on a monthly basis in line with other petroleum products.

Approved pricing elements include parameters such as losses due to net sales proceeds and relevant adjustments due to exchange rate, freight charges, import costs, importer’s margin, terminals, distribution cost, administrative margin and transmission losses.

Another important piece of legislation relating to LNG is the Petroleum Products (Petroleum Levy) Ordinance 1961. It classifies LNG as a petroleum product and determines its price through an amendment in 2015 in the first and second schedules of the ordinance.

The LNG/RLNG Regime is covered by the Midstream and Downstream Petroleum Industry of Pakistan and the focal legislation on the subject is the OGRA Ordinance 2002. Under the Ordinance, the Regulator has the power to grant, issue , to renew or revoke a license to domestic LNG buyers. and enforce licensing provisions. It also guarantees profitability, safety standards and the best prices. Licenses range from construction of pipelines, facilities, terminals, storage and transmission to gas utilities.

The Pakistan Offshore Petroleum (Exploration and Production) Rules 2003, made under Section II of the Regulation of Mines, Oil Fields and Mineral Development Act 1948, and Section 14 of the 1976 on territorial waters and maritime areas, also apply to gas in addition to oil and other substances.

The first LNG policy was introduced in 2006 with the approval of the Economic Coordination Committee (ECC). In accordance with the 2006 LNG Policy and the 2002 Oil and Gas Regulatory Authority (ORGA) Order, OGRA notified the LNG Rules in 2007 to place the planned LNG business under the regulatory. The 2007 LNG Rules provide legal, commercial and technical parameters regarding the construction, processing, production, testing, licensing, terminal and operational regimes of LNG.

The 2007 rules define an LNG terminal as a fixed or mobile installation, whether located on land or at sea, used for the loading, unloading, storage and regasification of LNG, including all ancillary equipment and pipelines and auxiliaries. It defines LNG production as the process of converting natural gas into LNG and includes natural gas processing, natural gas liquefaction, LNG storage and LNG filling. It authorizes the OGRA to grant a license to exercise any regulated activity to these persons for a maximum period of 20 years.

Holders are required, among other things, to locate, design, build, operate and maintain their facilities in strict accordance with the standards prescribed by the authority and in such a way as not to endanger public health or safety; strictly adhere to the requirements of the Pakistan Environmental Protection Act 1997 as amended from time to time.

In 2011, the LNG Policy 2006 was revised based on the latest developments in the LNG sector (both locally and globally). Also in 2020, the Liquefied Gases Branch, Petroleum Division of the Department of Energy initiated a process to revise the 2011 LNG Policy to bring it in line with the latest developments in the LNG sector (locally and globally).

The Pakistan Onshore Petroleum (Exploration and Production) Rules 2013, made under the Regulation of Mines and Oil Fields and Mining (Government Control) Act 1948, sets out the terms and conditions of royalties to be paid by the federal government to the provinces according to their share of liquid and gaseous hydrocarbons (such as LPG, natural gas liquids, solvent oil, gasoline and others).

The Oil and Gas Regulation (Amendment) Bill 2021, which seeks to ensure the regular pricing of natural gas, was approved in September 2021. After this amendment, OGRA will eliminate discrepancies between the regular determination and biannual rates and notification. It will also place all liquefied natural gas (LNG) and regasified liquefied natural gas (RLNG) licensing and pricing within the OGRA regulatory framework. The amendment would further empower OGRA to determine and notify the RLNG sale price under the OGRA Order of 2002.

The Direction générale du gaz works under the Petroleum wing of the Ministry of Energy. On the exploration and production side, its main functions include formulating government policies regarding natural gas, LPG, LNG and CNG; demand and supply assessment and management; the allocation of gas from new discoveries to gas distribution companies; allocation of natural gas from different supply sources to various sectors; review and execution of gas pricing agreements with producers and gas sales agreements between producers and the government-appointed buyer; assessment of consumer prescribed prices determined by OGRA and recommendations to the government for setting them

Pakistan LNG Limited (PLL) is a public sector entity founded in 2015. It operates under the Ministry of Energy (Petroleum Division). The PLL’s mandate is to buy, import, store LNG, distribute, transport, measure and sell natural gas. The PLL purchases LNG on international markets and enters into subsequent agreements for the supply of gas to end users, managing the LNG supply chain.

The Sui Southern Gas Company (SSGC) is a large listed company. It is Pakistan’s first integrated gas company. The government, directly and indirectly, owns the majority of the shares of the company which carries out natural gas transmission and distribution activities in addition to the installation of a high pressure transmission and low pressure distribution system.

Sui Northern Gas Pipelines Limited (SNGPL) was incorporated as a limited liability company in 1963 and converted into a public limited company in January 1964 under the Companies Act 1913 and subsequently the Companies Act 2017. The company took over the existing Sui-Multan system from the Pakistan Industrial Development Corporation (PIDC) and the Dhulian-Rawalpindi-Wah system from the Attock Oil Company Limited. The company’s business operations started with the sale of an average of 47 MMCFD of gas in two regions, Multan and Rawalpindi.

Despite a comprehensive legislative framework, there remain major challenges arising from the operational and administrative structure of LNG imports into Pakistan that need to be addressed.

The writer is an award-winning environmental journalist associated with The Knowledge Forum, a Karachi-based collective

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