All the reasons for gas shortages

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A crisis-like situation in the gas sector re-emerged towards the end of the last week in many parts of the country.

A large number of factories in Karachi and Punjab were forced to suspend production while domestic consumers complained that they faced difficulty cooking food or heating water because of gas outages as well as low pressure. The supply of gas for the transport sector in Karachi was also cut.

Federal Minister for Petroleum and Natural Gas Ghulam Sarwar Khan admitted on Friday that gas users across the country were facing the problem because of supply gaps on account of a surge in demand (because of low temperature). Gas companies also blamed shorter supplies and growth in consumption for the drop in gas pressure.

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Sui Southern Gas Company (SSGC) said the reduction in the fuel’s quantity in its system had caused low pressure, leading to the termination of supplies (to industrial, commercial and domestic consumers in parts of Karachi). It claimed that the problem of low pressure was temporary and steps like the suspension of supplies to the transport sector had been taken to divert the fuel to domestic users.

Sui Northern Gas Pipelines Ltd (SNGPL) said its consumers in Punjab and Khyber Pakhtunkhwa were facing low pressure, but the problem was not as serious as it used to be in the past. Its officials say the company was receiving a total of 650mmcfd of local gas, far short of the actual winter requirement of domestic consumers.

Heavy distribution losses and the availability of massively subsidised gas are causing wastages worth billions of dollars every year

The company diverted around 40 per cent of 1,000-1,100mmcfd of expensive, imported liquefied natural gas (LNG) to domestic consumers to cover the growing supply gap. They also blame illegal compressors installed by industrial, commercial and domestic consumers — especially at the tail end — for low pressure.

This is the second time during this winter that the gas crisis has hit consumers. The last time the shortages had caused large-scale industrial closures in Sindh and Punjab was in early December. They led to the dismissal of the heads of the two gas distribution firms.

Consumer complaints of low gas pressure during winter are not new. In fact, the overall situation this year was a lot better than the past few years because of the induction of imported LNG into the system. Moreover, it is the first winter in many years that the industry and fertiliser manufacturers did not have to face supply cuts in Punjab. “There are multiple factors — some seasonal and others structural — responsible for low pressure during winter,” according to an Oil and Gas Regulatory Authority (Ogra) official who spoke on the condition of anonymity.

“Seasonal factors include the collection of condensate — a form of oil — in the pipelines in winter, manifold increase in domestic consumption, aging distribution network, illegal compressors installed on the pipelines and so on. Structural problems that are pulling down the sector are rampant theft and distribution losses of close to 13pc and the availability of massively subsidised gas to industrial, commercial and domestic consumers, resulting in wastages worth billions of dollars every year.

“The domestic sector is not alone in wasting this depleting resource through the use of uncertified, inefficient and low-quality geysers, heaters and stoves. Our industry and power producers using gas to generate electricity through captive power plants are also contributing hugely to the waste. Same is the case with the transport sector. This is because the government is not charging the full price of gas,” he said.

Experts often blame the expansion in the size of the domestic consumer network for political reasons as a major cause for the country’s gas woes. At present, around 30pc of the total population is getting gas through the pipeline network of the two gas companies. Their number is growing. In contrast, the domestic production of gas is decreasing. Even though gas discoveries are consistently being made, they are small and expensive to handle. The demand gap has grown to 2,000-3,000mmcfd as the local production has depleted to less than 4,000mmcfd. The gap is partially being met through expensive LNG imports of nearly 1,000-1,100mmcfd.

Optimus Capital Management Executive Chairman Asif Qureshi concurs that the gas crisis is a consequence of past policies. “Pakistan is one of the few countries where a third of its population has the luxury of piped gas provided at highly subsidised rates while the rest of the populace is forced to use expensive liquefied petroleum gas (LPG) or burn wood, coal and kerosene oil for heating purposes. The past policies of subsidising all types of consumers — industrial, domestic or commercial — have created anomalies within all sectors that consider they are entitled to receive cheaper, subsidised gas.

“It is never easy to withdraw such entitlements. You need to have lots of political courage to do it. There’s no quick fix to problems like shortages and low pressure. If we want to fix the gas sector woes, we should first remove price distortions through deregulation. If locally produced oil can be sold at an international price, why can’t the same principle be applied to local gas? We also need to discontinue the use of gas for the transport sector and captive power generation by the industry. Why don’t car owners use petrol and industrial units use electricity from the national grid?”

Published in Dawn, The Business and Finance Weekly, February 11th, 2019

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