1In the name of Allah, The Most Beneficent,

The Most Merciful

Impact of Diversion of Gas from Industrial to Power Sector

Presented by: Bilal Khan Pasha, Commerce & Trade GroupSponsor DS: Mr. Javaid Iqbal

NATIONAL INSTITUTE OF MANAGEMENT, ISLAMABAD14th Mid Career Management Course

Current Issue Presentation

November 28, 2012

on

2

o Statement of Problem

o Introduction & Genesis of Issue at hand

o Broad Contours of the Issue

o Problems & Challenges

o Analysis

o Results & Future Scenario

o Conclusion

o Recommendations

o Questions & Answers

Sequence of Presentation

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4

Statement of Problem

The 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

5

Sources for Presentation

o Economic Survey of Pakistan 2011-12

o Pakistan Energy Year Book 2011-12

o Ministry of Petroleum & Natural Resources

o Ministry of Industries

o Ministry of Production

6

Sources for Presentation

o Planning Division

o Oil & Gas Regulatory Authority (OGRA)

o All Pakistan Textile Mills Association (APTMA)

o Karachi Electricity Supply Company (KESC)

o International Energy Agency (IEA)

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Natural Gas in Pakistan – Brief Facts

o Natural Gas – Gift of Nature & Precious Resource

o Use of Natural Gas

o According to IEA, global natural gas proven reserves are 300 trillion

cubic meters

o 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

65 Million TOE

Pakistan’s Primary Energy Supplies 2011-12

Natural Gas50.5%

Oil30.7%

Electricity12.5%

Coal6.3%

Value of Local Crude: $2.4 billion(67,000 Barrel/Day)

Oil Import Bill: $14.5 billion(36% of total imports)(380,000 barrels/Day)

Value of CoalLocal: $ 0.2 billionImported: $ 0.5 billon

Value of Natural Gas: $4.3 billion(4 BCFD)

Source: Economic Survey of Pakistan 2011-128

Sui

Indi

a

BALOCHIS

TAN

SIND

PUNJA

B

KPK

Karachi

Sukkur

Quetta

Multan

Faisalabad

Lahore

Islamabad

Peshawar

JAM

MU &

KASH

MIR

AC1X-SUI

Iran

GAS FIELDS (156)

SSGC LINES

SNGPL LINES COMPRESSORSTATIONS (17)

MAJOR LOAD CENTRE (5)

Pakistan’s Natural Gas Infrastructure

9

Consumers: 6.7 Million (1.6 million)Transmission Network: 11,045 Km (879Km)Distribution Network: 128,758 Km (38,828 Km)No. of Cities/Towns on gas: 307No. of Villages on gas: 4,989

Source: Ministry of Petroleum & Natural

Resources

Province Wise Gas Supply and Consumption (2011-12)

10

10

MMCFDGas Supply: 3,862 MMCFD

Gas Consumption: 3,511 MMCFD

Punjab; 182; 5%KPK3609%

Sind, 2649.29, 69%

Baloch.66718%

Punjab, 1531.351369863

01, 43.6%

KPK; 175; 5%Sind,

1562.924931506

85, 44.5%

Baloch.; 242; 7%

Source: MPNR

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11

Province

Gas Supply Gas Consumption

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 %

Province Wise Gas Supply and Consumption (2011-12)

Source: MPNR

Province Wise Gas Consumers as on 30.06.2012

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Province / Type

SNGPL SSGCL

Total Punjab KPK Sindh

Balochist

an

Domestic

3,594,93

7

516,87

1

2,239,7

31 223,853

6,575,3

92

Commercial 47,149

8,757 22,296

2,200

80,402

Industrial 5,798

830

4,077

56

10,761

Total

3,647,8

84

526,45

8

2,266,1

04

226,109

6,666,5

55 Source: MPNR

Sector Wise Gas Consumption

(2011-12)

Power, 992.46630136

9863, 28%

Domestic, 708, 20%

Commercial, 108, 3%Transport , 324, 9%

Fertilizer, 578, 16%

General In-dustry, 801,

23%

Gas Consumption - 3,511 MMCFD

13Source: MPNR

Gas Demand & Supply Projections

Demand

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

MM

CFD

14Source: MPNR

Project Volume (MMCFD) First FlowTransnational pipelinesIran-Pakistan 750 2015TAPI 1,325 2016

2,075Liquefied Natural Gas (LNG)Fast Track 200 June-2013Long Term-1 400 Q1-2015Long Term-2 400 Q2-2015

1,000LPG Air-Mix (SNG)SSGC 100 Q2-2013SNGPL 150 Q3-2013

250Total 3,325

Measures to Augment Gas Supplies (Imports)

15Source: MPNR

S.No Category of Consumers Priority1. Domestic and Commercial Sectors First

2. I) Fertilizer Sector; andII) Industrial Sector to the extent of their process gas Second

3. Independent Power Plants as well as WAPDA and KESC’s Power Plants having firm gas supply commitment under GSAs Third

4. General Industrial, CNG Sector and Captive Power Producers of export oriented Textile Industry Fourth

5.I) WAPDA’s and KESC Power Plants other than those listed

against S.no. 3 aboveII) Captive Power Sector

Fifth

6. Cement Sector Sixth

Gas Allocation and Management Policy, 2005

16There is no gas load management in Khyber Pakhtoonkhwa and Balochistan

Current Load Management

Presently, 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 of Peshawar High Court under Article 158 of the Constitution

•No curtailment in the Domestic and Commercial sectors

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Why the Use of Gas So Desirable ?

Natural Gas

Power SectorCheap fuel

Assured Supplies

Industry incl. FertilizerFeedstock for

manufacturingOnly raw material for

productionOptimal use of scarce

resource Domestic Consumers

Uninterrupted powerCheap fuel for heating

& transportation

Gas Sale Prices Effective from July 1, 2012

A. Domestic Sector Monthly consumption Level Sale Prices Cess FinalPrice

S l a b 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 - 500

B. Commercial Consumer 600 - 600 C. Industry including Captive 460 50 510 D. Power (WAPDA/KESC) 460 100 560 E. Independent Power Plants (IPPs) 460 100 560 F. Cement 700 - 700 G. CNG

Zone-1 (KPK, Baluchistan & Potohar Region 618.5 263.6 882.1 Zone-2 (Sindh & Punjab (Excluding Potohar)) 618.5 200 818.5

H. Fertilizer-Feed Stock Old Plants 116.3 197 313.3 New Plants/Addl. Volume for BMR 60.7 - 60.7

I. Direct Sales to WAPDA Kandhkot/Sara/Sui/Mari to Guddu 460 100 560

19Source: 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.

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Impact of Diversion of Gas from Industrial to Power

SectorPower Sector

Industrial Sector

Lack of industrial production related to gas as feedstock

Textile industry short of captive

power plant production

Fertilizer industry on verge of bankruptcy

Less import of furnace oil

Slight improvement in

electricity generation

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Impact of Diversion of Gas from Industrial to Power Sector

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Pow

er S

ecto

r

• Depleting gas allocation (504 to 337 BCF)

• Higher dependence on imported furnace oil ($ 7 billion)

• High cost of electricity & tariffs (Rs. 16/- per unit)

• Circular debt (Rs. 300 billion +)

Ferti

lizer

Indu

stry

• Lack of committed gas supply causing huge production losses (2.7 million tons)

• Import of fertilizers (Rs. 140 billion)

• A highly leveraged industry (Rs. 150 billion) Te

xtile

Indu

stry

• 90% industry dependent on CPP

• $ 14 billion exports in 2011-12

• Gas cuts causing 30% redundant production capacity

• 15 million employed workers

• 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

Issues in Gas Sector

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• Unattractive economic and financial returns for the

exploration companies

• Pricing of competing fuels

• Theft, sabotage and UFG

• Circular debt

Issues in Gas Sector

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Economic Evaluation of Natural Gas Use

Pakistan Integrated Energy

Model

• International Resource Group + Asian Development Bank + Energy Wing of Planning Commission

Model to examine the

economic impacts of

changing gas priority

• Setting up reference scenario for studying the energy mix of Pakistan

Gas has a higher economic value

for fertilizer production

compared to power sector

• Simulation, assessment and conclusion

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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

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We need an all-inclusive policy that

revitalizes every sector of the economy,

not just a few individuals or industrial

groups. 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 !

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Thank You

Questions & Answers