CCP finds hurdles in competition of LNG value chain

KARACHI: The Competition Commission of Pakistan (CCP) has found various barriers to competition at all levels of the liquefied natural gas (LNG) value chain, hence pushing the end consumers of RLNG at a competitive disadvantage.

The competition assessment of the LNG sector conducted by CCP finds competition barriers in the upstream market due to the LNG contract price negotiated and the pricing model adopted by Pakistan State Oil (PSO) and Pakistan LNG Limited (PLL).

The regasification at the Engro Elengy Terminal Limited (EETL) and Pakistan Gasport Consortium Limited (PGPC) terminal at the high tolling tariff of $0.479/mmbtu and $0.4177/mmbtu respectively (approximately $250,000/day), Port Qasim charges of $600,000/vessel, and the handling of RLNG by Sui Southern Gas Company (SSGC) resulted in higher network losses of SSGC, it said.

In the downstream due to the difference in cost structure i.e natural gas versus RLNG price (ring fenced pricing) resulted in higher cost of production for the end consumers of RLNG as against the natural gas.

Additionally the competition assessment of the regulatory framework highlights vagueness created around the classification of LNG and RLNG by the federal government according to which RLNG is included in the list of petroleum products whereas the status of LNG is unclear, resulting in the non-exemption of LNG from Sindh Infrastructure Cess (SIC) as against its exemption on petroleum products resulting in higher price of RLNG.

Based on the international best practices in the sector, it is recommended to improve the pricing models adopted in the Sale Purchase Agreements (SPA) through alternate pricing arrangements- the S-Curve Model, introduction of price ceiling and floor in the contract price, which will safeguard the interest of both the seller and the procurer of LNG.

CCP has advocated introducing spot market and natural gas hubs in the pricing model, and to renegotiate contract price review period, as in both the long-term Sale Purchase Agreement (SPA) the price review is after 10 years. This will result in a more competitive and affordable price of LNG secured in the upstream LNG market.

The commission points out that in the midstream LNG/RLNG market, competitive tolling tariff and port charges will result in a lower price of RLNG. The study also urges the gas transmission and distribution companies, SSGC and Sui Northern Gas Pipelines (SNGPL) for improvement in their network for efficient RLNG handling.

In the wake of depleting indigenous gas resources and the continuously rising energy import bill, the study also recommends greater focus of the government on renewable energy resources to meet the growing energy demand and energy sustainability.