Pakistan in discussion with Qatar for supply of LNG cargoes amid electricity shortfall

ISLAMABAD: Pakistan and Qatar are in an advanced stage of discussions for the supply of at least four cargoes of liquefied natural gas (LNG), which could pass through the Strait of Hormuz, sources told Dawn on Sunday.

They also said that after facing criticism over loadshedding even before the start of summer, the Power Division had already placed an order to the Petroleum Division for arranging around 400 million cubic feet per day (mmcfd) of liquefied natural gas (LNG) for power generation.

LNG imports to Pakistan were disrupted early last month after the closure of the Strait of Hormuz amid a war in the Middle East, which began with US-Israel attacks on Iran. In retaliatory action, Iran targeted fuel installations in some of the Gulf countries that had US assets and bases.

It was against this backdrop that Qatar declared force majeure early last month in all its global LNG contracts, including those with Pakistan.

Sources told Dawn that due to the resultant fuel and electricity shortfall, the Power Division made an urgent call for support from all stakeholders for the purchase of LNG cargoes as it came to know about the possibility of Pakistani-flagged ships passing through the Strait of Hormuz.

Qatar’s LNG cargos had earlier also returned from the Hormuz chokepoint.

And while there is no official confirmation of the exact number, sources said at least 25-30 loaded cargoes of Qatar petroleum are believed to be stranded between the processing stations and Hormuz at present.

Pakistan had requested Qatar, at the highest level, to provide at least four of those to it, for which it would also utilise its renewed diplomatic capital, if so required, sources said. The technical teams of the two sides had been engaged on this matter.

Meanwhile, Prime Minister Shehbaz Sharif also concluded this week a tri-nation tour, during which he also visited Qatar as part of diplomatic efforts for de-escalation between the US and Iran.

A senior government official at the Petroleum Division told Dawn that while there was a possibility of smooth operations of international fuel supply routes, particularly through the Strait of Hormuz, the Power Division had placed an order of more than 400mmcfd of LNG to meet electricity demand both in the service areas of K-Electric and distribution companies (Discos).

These sources said the electricity shortfall would keep on increasing as temperatures would rise in the days ahead, and it would be next to impossible to stabilise the national grid without electricity generation from major power plants, particularly those running on LNG in Punjab that had a total generation capacity of around 6000 megawatts.

On top that, they added, the utilisation of high-speed diesel (HSD) and even furnace oil at current market prices could significantly raise fuel costs. In that case, even one or two cargos from the open spot market could be economically viable in the greater power mix, the sources said.

“With the onset of the summer season, electricity demand has started to rise significantly across the country. In this regard, the availability of regasified liquefied natural gas (RLNG) remains critical for ensuring optimal power generation and maintaining system stability”, the Power Division wrote to the Petroleum Division, a source told Dawn.

It highlighted that any shortfall in RLNG supply would necessitate increased reliance on expensive alternative fuels such as HSD. “This would not only result in a substantial increase in the overall cost of generation but would also lead to prolonged hours of load management, thereby increasing the fuel cost adjustment (FCA) burden on end consumers”, the Power Division explained, the source said.

It was further highlighted that all four mega LNG plants of the federal and Punjab governments and the medium-sized Nandipur plant can use HSD as an alternate fuel as the generation price difference when HSD is used is normally more than Rs25 per unit, which is estimated to be higher at present, given volatile oil pricing changing on a weekly basis. These plants are also required for system stability for the evacuation of surplus power from the southern part of the country.

In order to ensure smooth system operations and to avoid the aforementioned impacts, the Power Division has also provided a detailed weekly forecast of RLNG requirements – segregated for solar and non-solar hours, along with average demand — prepared for the National Grid Company (NGC) system, sources said.

“K-Electric has also conveyed its RLNG requirement for the KE system”, the Power Division said, formally requesting the Petroleum Division to manage and allocate the Qatar contracted RLNG cargoes in a manner that ensured the availability of RLNG in line with the demand plan for both NGC and KE systems, thereby supporting uninterrupted and cost-effective power generation, sources added.

Officials said the cost of HSD-based generation, which exceeded Rs45 per unit before the US-Israel strikes on Iran, may now have risen beyond Rs80 per unit, but it was also difficult at present to consider HSD for power generation due to both its high cost and its critical demand in transport and agriculture, especially with the crop harvest at its last leg.

Summer peak demand typically rises beyond 28,000MW, compared to the current 19,000-20,000 MW during peak hours and below 9,000 MW in daytime, partly due to greater dependence on solar power, which has helped reduce grid demand. But, even solar consumers consume electricity from the grid after sunset.