The Pakistani government is actively considering the removal of the ban on new domestic gas connections, a move aimed at utilising surplus imported liquefied natural gas (LNG). This review of the policy is being conducted at a time when the country has an excess supply of LNG due to dwindling demand in the power sector.
Surplus LNG and the Cost Challenge
In the long run, Pakistan has an agreement with Qatar regarding long-term LNG imports, which is set to be renewed in 2030. Subsequently, the government estimates that the country’s annual import costs for LNG may reach $ 4 billion. Currently, domestic consumers are paying 1,800 rupees per MMBtu, whereas imported LNG costs almost twice that amount, at 3,500 rupees per MMBtu. There is also a significant annual loss of approximately Rs. 250 billion incurred by supplying imported LNG to households during the winter.
Declining Power Sector Demand and Surplus Situation
The surplus has mainly arisen because the power sector’s demand for gas has decreased, forcing authorities to curtail about 300 million cubic feet per day (MMCFD) of local gas production. Such precautions will be necessary to prevent damage to the gas pipeline system. This will have already led to the postponement of some of the LNG cargoes scheduled.
Pending Applications and Who Stands to Benefit
By the time the prohibition on new domestic gas connections was implemented in 2019, due to issues of cost recovery and gas shortages, more than 3.5 million new connection requests had accumulated. With the current 300 MMCFD overage of gas, up to 4 million new domestic customers may be served should the ban be reduced. The first preference will be given to applicants who have already deposited the required security payment of 300,000.
Next Steps and Cabinet Approval
After the government makes it final determination in terms of the situation and the cost recovery options, there will be a submission made to the Cabinet giving a summary of the same. The Cabinet will finally decide whether to officially lift the ban and begin issuing new gas connections to consumers.
Potential Impact on Consumers and the Energy Sector
Removal of the ban and being able to utilise it would have a positive impact because millions of domestic customers are either waiting to get an interconnection or wasting away LNG, not utilising their resources to the maximum. Nonetheless, this balance between cost recovery and long-term sustainability will be a crucial aspect for policymakers, which may become even more critical when Pakistan experiences an increase in the cost of importing LNG, as well as the changing nature of the energy sector.
Stay up to date with the latest news regarding recent changes in domestic gas policies and the impact of upcoming decisions on the establishment of new connections, tariffs, and the energy sector in Pakistan.
