SNGPL urges ministry of energy to retain captive power plants

Sui Northern Gas Pipelines (SNGPL) has called on the Ministry of Energy to retain Captive Power Plants (CPPs) with gas utility companies to prevent the risk of sovereign default and the bankruptcy of state-owned enterprises (SOEs) in the RLNG supply chain.

In a letter to the Petroleum Division, SNGPL highlighted that the current policy allowing third parties to sell indigenous gas at lower tariffs in RLNG areas, such as Punjab, has created market distortions.

The company opposed imposing additional levies on CPPs, beyond the RLNG price, as this would cause them to shift from the gas sector to third-party shippers or alternative fuels.

SNGPL pointed out that while it can only sell gas at the OGRA-notified RLNG tariff, private parties can bring system gas into RLNG areas and sell it at lower rates, reaping windfall gains.

The company suggested establishing a separate tariff for indigenous gas supplies to the power sector, allowing SNGPL to provide a blended supply during RLNG surplus situations, thereby reducing the cost of diversion passed on to domestic consumers.

The utility noted that industrial consumers are increasingly opting for cheaper indigenous gas, leading to a growing RLNG surplus. SNGPL emphasized that any policy decision to shift CPPs from the gas grid to the National Grid should be uniformly applied to both public and private sectors.

Under the IMF's guidelines, which SNGPL argues would be detrimental to Pakistan's petroleum sector, CPPs are to be moved from gas utilities to the power national grid.

In reality, many CPPs are turning to third-party shippers instead of the Power National Grid due to high tariffs and unreliable supplies.

SNGPL warned that shifting CPPs to the power grid could bankrupt companies like SNGPL and PSO, potentially leading to sovereign default, while benefiting third parties who are not being required to stop supplying CPPs.

The departure of CPPs from the gas grid would reduce SNGPL's sales, impact its revenue, and leave approximately 157 mmcfd of surplus RLNG with no potential buyer.

The surplus could reach 400 mmcfd by 2026 due to reduced power offtake and KE's declining RLNG demand from Pakistan LNG Limited.

Moreover, this can potentially result in around 240 surplus cargoes over the term of the remaining contract. Over 30% of RLNG supply will be rendered surplus.

SNGPL proposed reviewing the policy that allows third parties to sell indigenous gas in RLNG areas and ensuring all available and upcoming indigenous gas is provided to gas utilities.

The company urged the government to ensure a level playing field and remove regulatory imperfections that favor third-party shippers.

SNGPL called for the implementation of a National WACOG to reduce the cost of RLNG plants and establish uniform pricing to eliminate market distortions.