INTEGRATED ENERGY PLANNING FOR SUSTAINABLE

DEVELOPMENT

The Government of Pakistan (GoP) has envisioned an open and competitive private sector-
led energy sector that provides reliable, least-cost energy supplies to meet the anticipated growth
in energy demand. Integrated Energy Planning (IEP) is an effective and appropriate tool for
realizing the government’s vision of developing a sustainable, cost-efficient energy sector that
best meets the country’s strategic and socioeconomic needs and its rapidly growing demand for
energy. To carry out the activities of IEP on EPRC (Energy Planning and Resource Center) is
established at the Energy wing of the Planning Commission.

EPRC has initiated the process of long-term energy planning and policy development for the
country by targeting different domains of the energy sector. EPRC produced Pakistan Energy
Outlook Report 2021-30 which presents the supply and demand outlook for all energy
commodities being consumed in Pakistan. To help the energy sector with accurate long-term
planning, IEP has also published a 10-year energy demand forecast of the country in the form of
a report, “Pakistan Energy Demand Forecast 2021–30." In continuation of these efforts, IEP is
also working to target different segments of the energy sector, and the “Pakistan Natural Gas:
Policy Analysis and Way Forward” report is a similar step in this direction.

IEP is working to provide a reliable and easy-to-access data source to all the energy sector
policymakers, stakeholders, and academia involved in energy policymaking and planning. To
ensure easy access to real-time and accurate energy sector data, IEP has initiated work on a state-
of-the-art “Energy Information System” (EIS). IEP, as a part of its mandate to provide a
consolidated and up-to-date database of key energy sector information, will provide access to the
EIS to all the energy sector stakeholders in the future.

IEP is also playing a pivotal role in bringing energy sector stakeholders on a single platform
through different initiatives aimed at capacity building and collaborative working. Recently, IEP
organized an extensive training program on the “Low Emission Analysis Platform (LEAP),”
which is an efficient tool for long-term energy demand modelling. IEP invited all key energy
sector stakeholders to participate in the training program. In continuation of this program, IEP is
developing the first LEAP-based energy demand model for the country through participatory
consultation with energy sector stakeholders as a LEAP Working Group.

i
Acknowledgement
This report was developed by the Energy Planning & Resource Centre (EPRC) under
Integrated Energy Planning (IEP), Ministry of Planning, Development & Special Initiatives. The
authors are Farhan Ahmed Memon, Senior Research Associate (Policy); Muhammad Saad
Moeen1, Forecasting Specialist; and Nauman Hafeez, Research Associate. Data support was
provided by Jawad Ali Qadir and Usman Ahmad (Data Management Specialists).

EPRC extends its appreciation to the public sector policymakers including Prof. Ahsan Iqbal,
Minister PD & SI, Mr Shahid Khaqan Abbasi, Chairman of National Task Force on Energy, Mr
Khurram Dastgir Khan, Minister for Energy (Power Division) and Syed Zafar Ali Shah
Secretary, PD & SI for their participation in the consultative session2 for the report and their
technical and policy guidance followed by an appreciation for drafting this report.

Special acknowledgement to Mr Waqas Bin Najib, Member (Energy), Planning Commission,

for his utmost technical guidance, reviewing the overall analysis and policy inputs in shaping the
report and ensuring that it met the objectives and Mr Inayat Ullah Qureshi, Chief (EF&E)/Project
Director (IEP) for his constant supervisory role to accomplish this task.

While working on this report, EPRC has conducted different meeting sessions with gas sector
stakeholders which helped the Centre to nudge the report in the right direction. Therefore, EPRC
acknowledges the technical and data support provided by the following stakeholders; Energy
Wing, Ministry of Planning, Development & Special Initiatives, Ministry of Energy (Petroleum
Division), including the Directorate General of Gas, Directorate General of Petroleum
Concessions, Directorate General of Oil, Directorate General of Liquid Gases, Pakistan LNG
Limited (PLL), Inter State Gas Systems (ISGS), Pakistan State Oil (PSO), Oil and Gas
Regulatory Authority (OGRA), Oil and Gas Development Company (OGDCL), Sui Northern
Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC), and Ministry of
Energy (Power Division) including Central Power Purchasing Agency (CPPA-G) and Private
Power Infrastructure Board (PPIB).

Lastly, the role of the U.S. Department of Energy’s Pacific Northwest National Laboratory
team, USA has been very encouraging for the EPRC team. They provided technical and editorial
expertise in reviewing the analysis and providing insights to improve the report.

1
Corresponding authors: Muhammad Saad Moeen, <saadmoeen@hotmail.com> and Farhan Ahmed Memon
<farhanmemon86@gmail.com>
2
Consultative Session on “Pakistan Natural Gas Policy Analysis and Way Forward”
(https://www.pc.gov.pk/web/press/get_press/923) (Access date: 06-02-2023)

ii
Stakeholder’s Consultative Sessions at a Glance

IEP held different consultative sessions with energy sector stakeholders of the country to
ensure the inclusive development of policy recommendations for this report. The stakeholders
included the Ministry of Energy (Power Division), the Ministry of Energy (Petroleum Division),
the Directorate General of Gas, the Directorate General of Petroleum Concessions, the
Directorate General of Oil, the Directorate General of Liquid Gases, Oil & Gas Regulatory
Authority (OGRA), Oil and Gas Development Company (OGDCL), Pakistan LNG Limited
(PLL), Inter State Gas Systems (ISGS), Pakistan State Oil (PSO), gas distribution companies
including Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company
(SSGC), Central Power Purchasing Agency (CPPA-G), and Private Power Infrastructure Board
(PPIB). IEP has ensured the inclusion of recommendations from all gas sector stakeholders in the
report.

Data Collection: As IEP is not a primary source of gas sector data, it has received data used in
this report from different gas sector stakeholders who have been involved in the consultative
sessions during the working of this report. The IEP data team has participated in the data
collection meetings held with different stakeholders. The data collected for this report will also
be used in the Energy Information System being developed under the IEP project.

First Stakeholder’s Consultative Session: The first stakeholder's consultative session was held
with the representatives of DG (Gas), PLL, ISGS, SNGPL and SSGC on October 12, 2022. The
session discussed in-depth natural gas demand, supply side management and pricing mechanism
of natural gas in the country. The draft report was also shared with the stakeholders on October
05, 2022, for their views and comments.

Second Stakeholder’s Consultative Session: The second stakeholder's consultative session was
a high-level presentation session held on January 25, 2023, which was attended by the country’s
lead policymakers of energy including Prof. Ahsan Iqbal, Minister PD&SI, Mr Shahid Khaqan
Abbasi, Ex-Prime Minister of Pakistan, Mr Khurram Dastgir Khan, Minister for Energy (Power
Division) and representatives of DG (Gas), OGRA, PSO, OGDCL, PLL, ISGS, CPPA-G,
SNGPL, and SSGC. The session presented the “Pakistan Natural Gas: Policy Analysis and Way
Forward” draft. The gas supply and demand side management and pricing mechanism were
critically discussed, and a way forward was suggested by the policymakers.

iii
Contents
FOREWORD ...................................................................................................................................1
Keynote Message .............................................................................................................................2
Executive Summary .........................................................................................................................3
1. Overview of the Gas Sector in Pakistan ..................................................................................8
1.1 Decline in natural gas production in recent years ............................................................ 8

1.2 Depleting natural gas reserves........................................................................................ 10

1.3 Future trend of pipeline and dedicated field gas: ........................................................... 11

1.4 Natural gas and LNG seasonal consumption pattern ..................................................... 11

1.5 Natural gas consumption across all sectors .................................................................... 12

1.6 Scope of the study .......................................................................................................... 13

2. Policy Analysis: Demand Side...............................................................................................15

2.1 Gas allocation priority – An analysis of regional countries ........................................... 15

2.2 Gas consumption pattern ................................................................................................ 16

2.3 Demand forecast for gas ................................................................................................. 17

2.4 Demand-side management ............................................................................................. 18

2.4.1 Demand-side management – Domestic sector .........................................................19

2.4.2 Gas consumption customers categories ...................................................................20

2.4.3 Domestic end-use seasonal consumption.................................................................21

2.5 Estimation model for substitution of heating (space and water) .................................... 23

2.5.1 Estimated substitution of gas for heating with electric appliances ..........................24

2.5.2 Estimated parity of gas prices with electricity tariff ................................................26

2.5.3 Financial implications in wake of gas substitution with electricity .........................29

2.6 Demand side management for other sectors .................................................................. 29

2.7 Recommendations .......................................................................................................... 30

2.7.1 Short-term ................................................................................................................30

2.7.2 Medium & long-term ...............................................................................................30

3. Policy Analysis: Gas Pricing Regime ....................................................................................34

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 3.1 Consumer prices and subsidy mechanism ...................................................................... 34

3.2 Comparative price analysis between natural gas and LNG............................................ 35

3.3 Comparative price analysis between LNG and LPG ..................................................... 37

3.4 Recommendations .......................................................................................................... 39

4. Policy Analysis: Supply-side .................................................................................................41

4.1 Growing import of LNG ................................................................................................ 41

4.2 Increasing reliance on net LNG imports ........................................................................ 42

4.3 LNG procurement .......................................................................................................... 43

4.4 LNG import infrastructure ............................................................................................. 44

4.5 Introducing gas trading companies in Pakistan .............................................................. 45

4.6 Developing gas storages facilities in the future ............................................................. 46

4.7 Analysis of unaccounted-for gas (UFG) losses .............................................................. 48

4.7.1 Component-wise breakdown of UFG losses............................................................49

4.7.2 Policy matrix to reduce UFG losses in the sui companies .......................................51

4.8 Promoting exploration and production activities ........................................................... 52

4.9 Conversion of low BTU gas ........................................................................................... 54

4.10 Gas import through cross-country pipelines ............................................................... 55

4.11 Development of Pakistan stream gas pipeline ............................................................ 55

4.12 Recommendations ...................................................................................................... 57

4.12.1 Short-term ................................................................................................................57

4.12.2 Medium and long-term ............................................................................................58

5. Action Plan Policy Matrix .....................................................................................................62

Annex-I: Sui companies-wise pipeline gas consumption ..............................................................65
Annex-II: Domestic (Residential) consumer tariff (February-2023) .............................................66
Annex -III: Cross subsidy pattern ..................................................................................................67
Annex -IV: LNG procurement process ..........................................................................................68
Annex -V: LNG import infrastructure ...........................................................................................69
Annex -VI: Technical and financial breakup of gas storage infrastructure development .............70
Annex -VII: Sui companies-wise gas consumption, UFG losses and its components ..................71
References ......................................................................................................................................72

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Figures
Figure 1. Natural gas production ............................................................................................... 9
Figure 2. Historical gas availability in the distribution network ............................................... 9
Figure 3. Natural gas reserves as of 2021 ................................................................................ 10
Figure 4. Natural gas production projection ............................................................................ 11
Figure 5. Projected gas availability in the distribution network .............................................. 11
Figure 6. Seasonal gas consumption pattern ............................................................................ 12
Figure 7. Natural gas consumption .......................................................................................... 12
Figure 8. Seasonal gas consumption pattern for different sectors ........................................... 17
Figure 9. Energy demand forecast for gas ............................................................................... 17
Figure 10. Gas and LPG consumption in domestic sector ....................................................... 19
Figure 11. Domestic End-Use gas seasonal consumption ....................................................... 22
Figure 12. Seasonal gas consumption ...................................................................................... 23
Figure 13. Gas consumption by customer categories .............................................................. 24
Figure 14. Gas savings in case of substitution of high customer category .............................. 25
Figure 15. Gas price parity scenarios with par of electricity tariff .......................................... 28
Figure 16. Cross subsidy pattern .............................................................................................. 35
Figure 17. The highest basket price of LNG............................................................................ 36
Figure 18. Natural gas, LNG and LPG price comparison........................................................ 38
Figure 19. Import of LNG ........................................................................................................ 41
Figure 20. Primary supply of gas ............................................................................................. 42
Figure 21. Primary peak demand for gas ................................................................................. 43
Figure 22. LNG Import ............................................................................................................ 43
Figure 23. Terminal requirement for LNG imports ................................................................. 45
Figure 24. Stored RLNG price in comparison to monthly international prices ....................... 47
Figure 25: Comparison of SNGPL and SSGC UFG losses ..................................................... 49
Figure 26: Comparison of annual SNGPL and SSGC UFG losses ......................................... 49
Figure 27. Component-wise UFG Losses in SNGPL .............................................................. 50
Figure 28. Component-wise UFG Losses in SSGC ................................................................. 50
Figure 29. Price analysis for wellhead gas price...................................................................... 54
Figure 30. System wise gas consumption pattern .................................................................... 56
Figure 31. North-South gas pipeline map ................................................................................ 57

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Tables
Table 1. Gas allocation priority order of regional countries ......................................................... 16
Table 2. Pipeline gas consumption in MMBTU ........................................................................... 18
Table 3. Domestic sector consumption pattern ............................................................................. 21
Table 4. Estimation of parity price between gas and electricity for substitution .......................... 27
Table 5. Financial implications of substitution ............................................................................. 29
Table 6. Price analysis of natural gas vs LNG (USD/MMBTU) .................................................. 37
Table 7. Price analysis for LNG and LPG (USD/MMBTU) ........................................................ 38
Table 8. Future primary supply for gas (MMCFD) ...................................................................... 42
Table 9. LNG term contracts ........................................................................................................ 44
Table 10. LNG terminal capacity.................................................................................................. 44
Table 11. Gas storage infrastructure cost ...................................................................................... 48
Table 12. Regional comparison of wellhead prices ...................................................................... 53
Table 13. Cross-country gas pipeline metrics (2020-21) .............................................................. 55

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Acronyms
APM Administrative pricing mechanism
CPP Captive power plant
CNG Compressed natural gas
EPRC Energy Planning and Resource Center
E&P Exploration and production
EYB Energy Yearbook
GWh Gigawatt hours
IEP Integrated energy planning
IPP Independent power plant
KE K-Electric
LNG Liquefied natural gas
LPG Liquefied petroleum gas
MMBTU Metric million British thermal unit
MMCFD Million standard cubic feet per day
OGRA Oil and Gas Regulatory Authority
PUG Passing unregistered gas
SNGPL Sui Northern Gas Pipelines Limited
SSGC Sui Southern Gas Company
UFG Unaccounted for gas
WAPDA Pakistan Water and Power Development Authority

viii
FOREWORD
Under Vision 2025, Pakistan has aimed to ensure uninterrupted
access to affordable and clean energy for all sections of the population
through Integrated Energy Planning. One of the key pillars of energy
sector transformation in Vision 2025 has been the focus on demand
management and conservation, prioritization in allocation, elimination
of wasteful use, incentives to use more energy-efficient appliances, and
achieving a balance between supply and demand of energy. The energy
sector of Pakistan can be revitalized through institutional reforms, strengthening regulatory
frameworks, and improving transparency and efficiency.

The past few decades have seen no substantial discoveries of gas in Pakistan which has
led to a rapid decline in local natural gas resources. As a result, Pakistan was left with no option
but to import expensive LNG from international markets to meet the country's rising gas
demand. In the last few years, Pakistan has faced a severe financial crisis which has made the
import of expensive energy products a dire challenge for the national government. Keeping the
present situation of the energy sector in view, it is the right time to introduce strategic reforms in
the energy sector through short-, medium-, and long-term policy interventions.

The report “Pakistan Natural Gas: Policy Analysis and Way Forward” is a step towards
achieving energy sector development targets aspired through Vision 2025. The report highlights
key issues that are hindering the provision of a sustainable supply of natural gas in the country.
Through an in-depth analysis of the demand and supply side of natural gas, this report has laid
down a base for gas sector demand and supply side management. Through policy interventions at
different stages, the recommendations laid down in this report will help in ensuring an efficient
supply of natural gas to its consumers, prevent wastage of natural gas in its unnecessary usage, a
cap on the rising gas circular debt, and shift the consumption of gas towards sectors where
maximum energy output from a single molecule of gas could be achieved. It goes without saying
that the government alone cannot steer the country towards progress, but the entire national has
to play its role.

I hope this policy report will be used as a policy tool by the country’s gas sector
stakeholders in bringing an efficient and effective outlook to the gas sector in the next 10 years.

Prof. Ahsan Iqbal

Minister for Planning, Development and Special Initiatives

1
Keynote Message
Over the past few decades, natural gas has become a major component of Pakistan’s energy
mix. The increase in consumption of natural gas is mainly due to the introduction of captive
power generation in the industry, and the use of CNG in transportation, power generation, and
domestic use. While consumption has been increasing rapidly, the indigenous production of
natural gas has stagnated. Depletion of known gas reserves means that indigenous production
will continue to decline and reliance on imported LNG will increase in future.

Cost-reflective pricing of natural gas will be a key political decision to develop a sustainable
natural gas supply chain in the country. Storage and transmission of natural gas will be another
major infrastructure investment required to supply gas to the load centers and prevent global
supply and pricing shocks.

Pakistan has an extensive natural gas transmission and distribution network. Natural gas,
even as imported LNG, will continue to be the most cost-effective energy supply for domestic
use. If domestic prices of natural gas can be made cost-reflective, Pakistan can afford to supply
to the domestic sector as the most competitive energy source compared to alternatives like LPG.
However, energy efficiency in natural gas appliances and improved building codes to reduce the
energy needs for space heating and cooling are perhaps the most important intervention required
to make energy use affordable for the majority of the population.

There is a case to be made for prioritizing scarce natural gas towards economic activity like
industry and power generation. Allocation and prioritization of natural gas supply is another
important political decision required. Pakistan will also need to develop additional LNG import
terminals and import pipeline infrastructure to meet the projected demand.

Integrated Energy Planning is a tool to help policymakers make informed decisions based on
different policy scenarios. We hope this report helps in understanding the natural gas demand
and supply situation and will lead to further work in exploring the available options.

2
Executive Summary
The Energy Planning & Resource Center has the mandate to perform long-term sustainable
planning in the energy sector of Pakistan. “Pakistan Natural Gas: Policy Analysis and Way
Forward” as a policy report is the continuation of these efforts being carried out in this direction.
This report presents a comprehensive view of the present state of the gas sector in Pakistan, a
policy analysis for the demand side-management with a comprehensive set of recommendations,
a policy analysis of the gas pricing regime in the country with different pricing scenarios and
lastly, policy analysis for supply-side management and recommendations to improve the gas
supply in the country.

Overview of the Gas Sector in Pakistan: Pakistan has abundant natural gas reservoirs spread
across the country. However, due to the low of exploration and production (E&P) activities, new
gas fields have not been discovered which has resulted in decline of natural gas production.

 Production has declined from 4,063 MMCFD in 2012 to 3,505 MMCFD in 2021. The
pipeline and dedicated field gas quantity has also reduced from 3,593 MMCFD in 2016 to
2,961 MMCFD in 2021.
 The country has the remaining balance of recoverable reserves is only 20,951 billion CFt.
The trend projects that gas production will shrink from 3,789 MMCFD in 2022 to 2,306
MMCFD by 2030. To overcome the supply and demand gap, the government decided to
import liquefied natural gas (LNG).
 The government has prioritized the domestic sector as per the Natural Gas Allocation and
Management Policy1. The country is providing high British Thermal Unit (BTU) gas to the
domestic sector while low BTU gas is provided to the power and fertilizer.

Policy Analysis – Demand Side: Out of the total availability of 926,068,109 MMBTU of
pipeline gas consumption, the domestic sector share accounts for 34 percent, followed by 28
percent for power, 14 percent for other industries including textile and 11 percent for captive
power Therefore, the domestic sector becomes an attractive sector to introduce policy
interventions for demand-side management.

 Pakistan has kept the domestic and commercial sectors on top of the gas allocation priority.
On a regional level, countries like India and Bangladesh gave priority to the fertilizer and
power sectors.

3
 Gas consumption pattern varies seasonally. In January 2022, consumption reached a peak
of 4,161 MMCFD due to more consumption in the domestic sector, while in July 2021, the
peak was at 4,073 due to more consumption in the power sector.

Demand-Side management: Domestic sector is an ideal target for demand-side

management of natural gas. Therefore, the following initiatives could be taken.

 Recently, the authority has revised consumer prices according to the estimated revenue
requirement. The protected consumer's prices are based on the average consumption of 0.9
hm3 and non-protected slabs are ranging from up to 1 hm3 to above 4 hm3. Since previous
slab-wise data did not represent the actual slab-wise representation of the consumption and
number of customers. Thereafter, Sui companies must ensure the actual representation of
domestic slab-wise consumption and its customers by shifting lower slabs into higher slabs
if consumption increases.
 In summers, 698 MMCFD of the total consumption is used for cooking, while in winters,
total consumption goes up to 1,665 MMCFD including 795 MMCFD for space and 202
MMCFD for water heating. This creates a gas shortfall in winter. Therefore, the demand
can be curtailed through the management of gas used for heating.
 For analyzing the estimation model, we assumed that consumption slabs fall into low,
medium, and high consumption categories and larger portion of the gas is being consumed
by the high consumption category leading to a shortfall in the winter season. With the
targeted estimated substitution of up to 31,447 million CFt gas from water heating and
24,115 million CFt gas from space heating can be conserved.
 Different price scenarios are presented including winter package at the rate of 12.96 per
kWh where gas prices would be increased to Rs. 3,797 per MMBTU, NEPRA’s average
residential tariff at the rate of 14.22 per kWh where gas prices would be increased to Rs.
4,166 or average basket price at the rate of 16.36 per kWh where the gas price would be
increased to Rs. 4,793 per MMBTU.
 In wake of substitution for heating, 55,602 million CFt gas could be conserved which could
produce 5,042 GWh power and USD 583 million from LNG import reduction can be
saved. Similar substitution potential is present in the commercial sector.

4
 At present, captive power plants (CPPs) are consuming 298 MMCFD of gas from Sui
Companies. These plants could be disconnected from the gas and to shift industry to
national grid to further conserve the gas.

Recommendations for demand-side management

 Substitution of natural gas with electricity in the domestic sector for space and water
heating. Similar to the substitution of natural gas in the domestic sector, the commercial
sector could also be considered for substitution to further conserve the gas.
 The public should be educated about the negative impacts of the wasteful use of natural gas
particularly in the domestic sector through media and mass campaigns. Also in the
domestic sector, the use of solar water heaters could be encouraged.
 Representation of the slab-wise consumption mechanism may be improved to depict the
actual consumption being carried out in the customer slabs.
 The disconnection of CPPs from the gas could be ensured to conserve natural gas.

Policy Analysis: Gas Pricing Regime: The delay in the provision of budgeted subsidies to the
gas sector has resulted in the accumulation of large tariff differential. The previous pricing
regime was operating on an entrenched cross-subsidy mechanism which was provided to lifeline
consumers that were not budgeted annually.

 The cost of LNG is much higher than indigenous gas and the entire basket price of LNG is
not transferred to its domestic consumers. The regular revisions of the natural gas prices
according to the basket price of LNG will reduce the price differential that has been
accumulated to Rs. 577 billion in the shape of gas circular debt.
 In 2022, LNG prices increased from USD 12 to USD 30.60 per MMBTU resulting in price
variance between natural gas prices and LNG basket prices going as high as USD 9.62 per
MMBTU in 2022 which requires parity in prices. In comparison to LPG, the basket price of
LNG is comparatively less. In 2022 LPG basket price was USD 22.33 per MMBTU while
the basket price of LNG was USD 16.83 per MMBTU. Therefore, LNG could be used
instead of LPG.

Recommendations for gas pricing regime

 A cost-reflective gas pricing regime is to be introduced which delivers the actual cost of
LNG to its end consumers. Consumer prices should be revised regularly to bring them at

5
 par with LNG delivered cost. The budgeted subsidy initiated in the gas sector should be
continued to reduce differential accumulation.

Policy Analysis – Supply Side: The net available supply for gas in the country would be 3,867
MMCFD by 2030. Policy-level efforts in the following areas may improve the gas supply.

 LNG procurement and trading: Based on the LNG import forecast, an additional
terminal with a minimum capacity of 600 MMCFD will be needed to facilitate the
anticipated import requirement of 1,900 MMCFD by 2030. Moreover, Pakistan can benefit
from the concept of gas trading companies to bring sustainability to the gas supply chain
through short-term spot purchases and long-term procurement contracts.
 Gas storage: In the long-term planning window of the gas sector, Pakistan could explore
the future possibilities of developing gas storage facilities in the country. Pakistan has an
ample amount of exhausted gas wells that could be studied to frame out the development of
gas storage infrastructure.
 Unaccounted for gas (UFG): UFG losses in both systems; SNGPL and SSGC increased
significantly over the years. Due to the different nature of the losses, a single UFG
reduction mechanism cannot be applied to both systems.
 Exploration & production activities: Pakistan has not been able to strike the discovery of
gas reserves similar to Sui. Therefore, policy-based measures are required to attract
investment in E&P activities.
 Development of pipelines: To improve the country’s gas supply and reduce the reliance on
LNG imports, the work on cross-country gas pipelines including Turkmenistan-
Afghanistan-Pakistan-India (TAPI) and Iran-Pakistan (I-P) gas pipelines should be
expedited. Also, a dedicated pipeline to transmit RLNG from SSGC to SNGPL is required.

Recommendations for supply-side management

 Gas trading companies could be introduced for better management of the LNG purchase.
Specialized LNG procurement rules should be allowed by PPRA to help the gas importing
companies with timely LNG procurement. Moreover, Pakistan should enter new long-term
LNG contracts in the coming years to ensure a sustainable supply of gas.
 Incentives similar to the regional countries be given to E&P companies for the exploration
of gas. The development of gas storage infrastructure should be considered the future for
long-term supply management of natural gas.

6
 A feasibility study should be conducted to study the possibility of conversion of low BTU
gas to high BTU gas.
 To reduce the supply-side constraints. OGRA and Sui Companies to play a proactive role
in UFG management.
 In the medium- and long-term supply management, LNG terminal capacity should be
enhanced to allow more imports of LNG in the future. Also, LNG regasification capacity
should be enhanced. Also, Pakistan should consider gas imports from neighboring
countries. For this purpose, dedicated pipeline development should also be considered.

7
 1. Overview of the Gas Sector in Pakistan
Over the decades, natural gas has remained a leading source in the total energy mix of
Pakistan. One-third of the total primary energy supply comes from natural gas to meet the
country’s energy demand. It is a cleaner fossil fuel and produces around 50 percent fewer carbon
emissions compared to other fossil fuels.

During the last decade, Pakistan has faced a severe gas supply crisis due to depleting reserves
and the non-judicious use of natural gas, particularly in the transportation sector. Moreover, the
provision of expensive liquefied natural gas (LNG) to the domestic sector at subsidized rates has
swollen the gas circular debt, leading to more complexities in natural gas management.
International LNG market prices increase significantly during the winter months and can lead to
financial sustainability issues in the gas supply. To ensure sustainability in this sector, a policy
framework is required for the supply, demand and pricing mechanism of gas in the country.

1.1 Decline in natural gas production in recent years

In the early 2000s, natural gas production in Pakistan soared considerably due to the rapid
pace of E&P activities and sustainable supply from the Sui reserves. Natural gas production
reached a peak of 4,271 MMCFD in 2012. Since then, production has declined due to the
slowing down of E&P activities, decreasing probability of discovery of major fields, the law-
and-order situation in the potentially gas-rich areas, insufficient investment by foreign companies
in E&P activities in Pakistan, and unattractive E&P policies by the government for exploration
companies. In the past, natural gas was mainly produced in the province of Sindh followed by
large discoveries in Balochistan. However, the majority of these reserves are now either
exhausted or production has largely declined. In recent years, gas production has also started in
Khyber Pakhtunkhwa, but it is insufficient to meet the country’s present demand (see Figure 1).

8
Figure 1. Natural gas production at field (Source: Energy Yearbook (EYB) [2000-2021])

The gas extracted from the associated and non-associated gas fields is not entirely consumed.
It has by-products such as LPG, impurities such as sulfur and moisture, and transformation losses
during different stages of transformation. The net gas after production from dedicated associated
and non-associated fields is distributed to the different end consumers through two distribution
pathways including Sui company’s pipeline system and dedicated field gas directed from gas
fields of Mari Petroleum, PPL and Oil and Gas Development Company, Pakistan Oilfields and
Pakistan Petroleum to power and fertilizer industries. The sum of pipeline gas and dedicated
field gas is the actual amount of local gas available for consumption at a particular point in time.
In the last few years, a visible decline has been observed in the gas available for consumption as
production from the committed gas fields has sharply declined (see Figure 2).

Figure 2. Historical net gas supply in the distribution network (Source: SSGC and SNGPL)

9
 1.2 Depleting natural gas reserves

Pakistan has proven (1P), probable (2P) and possible (3P) reserves of gas distributed across
the country. According to the British Petroleum Statistical Reviews, Pakistan ranks 29th on the
list of countries with the most gas reserves in the world.2 Currently, 277 non-associated and 77
associated gas fields from 1P reserves are operating in Pakistan. As of 2021, the country had
natural gas original recoverable reserves amounting to 63,311 billion cubic feet (billion CFt).
The current cumulative production till 2021 is 42,360 billion CFt, and the balance recoverable
reserves are 20,951 billion CFt (see Figure 3).

Figure 3. Natural gas reserves as of 2021 (Source: DG Gas, Ministry of Energy)

Associated and non-associated gas fields operating in the country are depleting at a rapid
pace. In the next 10 years, the share of local gas in the country’s primary supply will be reduced
to insignificant values. With the present pace of gas production, the depletion trend suggests that
natural gas production will shrink to 2,300 million standard cubic feet per day (MMCFD) by
2030, compared to 3,789 MMCFD in 2022 (see Figure 4).

10
Figure 4. Natural gas production projection (Source: DG (Gas), Ministry of Energy)

1.3 Future trend of pipeline and dedicated field gas:

The impact of depleting natural gas resources in the country would be visible in the shape of
gas available for consumption in the gas distribution network. In the coming 10 years, gas in the
Sui system pipeline and dedicated field gas pipeline will constantly decrease as production from
associated and non-associated gas fields is projected to decline. For the calculation of the
projected gas decline, the decline rate of the retrospective data is adopted (see Figure 5).

Figure 5. Projected net gas supply in the distribution network (Source: SSGC, SNGPL and DG (Gas), Ministry of
Energy)

1.4 Natural gas and LNG seasonal consumption pattern

Natural gas and LNG consumption within economic sectors and power generation show
variations in seasonal patterns. Due to surging demand in the domestic sector during the winter

11
months, consumption of natural gas and LNG peaks in January. However, a larger portion of
natural gas and LNG is utilized for power generation in the summer (see Figure 6).

Figure 6. Seasonal gas consumption pattern (Source: IEP Database [2019-20])

1.5 Natural gas consumption across all sectors

Pipeline gas along with dedicated field gas is consumed by different economic sectors and for
power generation in recent years. In recent years (2020 may represent an outlier due to the global
COVID-19 pandemic), the consumption of pipeline gas in the domestic sector and power
generation has noticeably increased. The increase in the domestic sector is due to a growing
number of gas consumers. For the power generation sector, a policy-based reduction in the
import of furnace oil used for power generation in thermal power plants has contributed to the
increase in gas consumption (see Figure 7).

Figure 7. Natural gas consumption (Source: IEP Database [2016-2020] and EYB 2020-21)

12
 In Pakistan, the larger portion of pipeline gas is supplied to mainly domestic, power and
general industries. In the domestic sector, quality gas is used for cooking and heating purposes
which has the least economic output. Whereas its share in the economically beneficial power and
industrial sector is comparatively low. These sectors are supplied with low BTU below 900
heating value gas for power generation and fertilizer production. Globally, gas above 900 BTU is
used in the industrial and power sector to extract maximum economic benefits from it. Therefore,
the supply of quality pipeline gas to the domestic sector attracts its demand-side management
through substitution with electricity and change in its prices to encourage domestic customers to
switch to other alternatives. As a result, conserved quality gas may be utilized in other sectors
with higher economic output.

1.6 Scope of the study

This report presents a comprehensive review of the current natural gas scenario of the country
including depleting gas reserves and the shortfall in natural gas production. The demand side of
the gas sector has been divided into natural gas demand overview with special reference to the
domestic sector followed by gas pricing, consumption patterns and its recommendations for the
supply side of the gas sector has been divided into natural gas supply constraints and
recommendations for supply-side management. The core policy objectives of this study are:

 To address the challenges of increasing LNG import and the need for additional terminals
and expansion of LNG import infrastructure to facilitate the anticipated import requirement
in future.
 To provide a set of policy options to manage demand-side management with special
reference to the gas consumption trends in the domestic sector.
 To review the present pricing regime of natural gas, LNG, and LPG and to provide policy
input for the future gas pricing regime for self-sustainability in the gas sector of Pakistan.
 To evaluate a possible substitution of natural gas consumption for space and water heating
and review its impact in terms of savings and economic output.
 To analyze the key supply-side dimensions like UFG, E&P activities, conversion of low
BTU gas, gas storage infrastructure, the introduction of gas trading companies, and the
development of cross-country gas pipelines to develop a policy framework to improve the
gas supply.

13
 Box 1: Overview of the gas sector in Pakistan

 Natural gas is the leading energy source in Pakistan, one-third of the primary energy
supply of the country.

 Excessive reliance on natural gas and its subsidized rates have increased the depletion of
natural gas reserves.

 Presently, the country has balanced natural gas recoverable reserves amounting to 20,951
billion CFt only.

 By 2030, natural gas production will decrease to 2,300 MMCFD, compared to 3,789
MMCFD in 2022.

 Insufficient investments, low wellhead exploration rates, and other factors have led to a
decline in the E&P activities of natural gas.

 The gap in the supply of natural gas is being filled by the import of LNG from
international markets.

 The highest supply-demand gap is observed in the winter seasons due to increased
consumption in the subsidized domestic sector.

14
 2. Policy Analysis: Demand Side
Since the discovery of large gas reserves in Sui, Pakistan has mainly relied on natural gas as
a primary energy source in different economic sectors of the country. As natural gas extracted
from Sui was a local natural resource, it became an easily accessible and inexpensive source of
energy, particularly for domestic sector gas consumers, among which the majority of consumers
are considered lifeline customers. Natural gas as an indigenous energy resource has been serving
various purposes including a direct energy source in cooking, space and water heating in the
domestic sector, electricity production in the power sector, as a fuel in the transportation sector
and indirect energy purposes including consumption as raw material in the fertilizer industries.
Due to the rapid exploitation of natural gas in multiple sectors, the constant decline in reserves,
and depleted production have created hurdles in meeting the country’s gas demand. As a result,
natural gas management has been carried out by policymakers through various consumption and
allocation priorities, including:

 Curtailing the aggressive demand for compressed natural gas (CNG) in the transportation
sector.
 Import of LNG to meet the natural gas demand in the country.
 Supply of gas for thermal power generation cushioned with LNG.
 A recent decision on the disconnection of natural gas from captive power plants.
 Ban on domestic connections from 2021.

As the majority of domestic consumers of gas fall in the lifeline customers category and to
provide financial relief to the general public, the government has given priority to the domestic
sector in the Natural Gas Allocation and Management Policy.

2.1 Gas allocation priority – An analysis of regional countries

The rapid decline in the natural gas of the country could be associated with the gas allocation
priority order. Pakistan’s gas allocation priority order was compared with other growing
economies in the region, like India and Bangladesh. These countries prioritize gas allocation to
their fertilizer and power sectors, with first and second priority, respectively. In contrast,
Pakistan’s gas utilities companies have kept domestic and commercial sectors as their top
priority (see Table 1).

15
 Table 1. Gas allocation priority order of regional countries
Pakistan India Bangladesh
Priority
Order Independent
Gas Utility Companies APM Non-APM Sector
Network
Fertilizer Power
First Domestic and commercial Fertilizer Fertilizer
plants plants
(i) Fertilizer
GENCOs,
Second (ii) Industrial sector to the Fertilizer LPG plants Power
KE, and IPPs
extent of their process of gas
Power
IPP, GENCOs, and KE power sectors other
Third Power plants Industry/tea
plants than those
listed above
Domestic and Captive
Fourth General industrial and CNG
transport power
(i) GENCOs and KE plants Industrial Residential
Fifth other than those listed above plants as a and
(ii) Captive power sector feedstock commercial
Industrial and
Sixth Cement sector CNG
commercial
Captive power
Seventh
and others
APM: administrative pricing mechanism; KE: K Electric; IPP: independent power plants; GENCOs:
Generation Companies
(Source: Natural Gas Allocation and Management Policy 2005. MoE [Petroleum Division], Pakistan, Ministry of
Petroleum and Natural Gas, India, and Gas sector Master Plan Bangladesh 2017)

2.2 Gas consumption pattern

The consumption of gas varies seasonally across all economic sectors. Particularly in the
domestic and power sector, gas consumption has various seasonal patterns. Consumption of gas
in the domestic sector increases in the winter months with a peak in January. While in the power
sector, the consumption peak is observed in the summer season as power production from gas
reaches its maximum value in July. During the summer months, gas consumption in the domestic
sector remains fairly flat and shifts to the industrial sector for effective utilization of available
resources. Across the year, spring and fall remain two seasons in which consumption does not
attain higher peaks (see Figure 8).

16
Figure 8. Seasonal gas consumption pattern for different sectors (Source: DG (Gas), Ministry of Energy)

2.3 Demand forecast for gas

Similar to past trends, the gas demand forecast indicates that the domestic sector will remain
the top-consuming sector based on population and urban growth. As natural gas production is on
the decline, reliance on imported LNG will increase in the near future to meet the gas demand.
Based on industrial growth and the government’s policy towards the promotion of exports, the
industrial share along with fertilizers (feedstocks) may increase sharply in future and it will
constitute the highest share of gas consumption.

Previously, the consumption of gas for power generation remained higher, however, due to
depleting reserves, its share will come down to 572 MMCFD by 2030 (see Figure 9).

Figure 9. Energy demand forecast for gas (Source: Pakistan Energy Outlook Report, IEP [2021-2030])

17
 2.4 Demand-side management
The constant depletion of natural gas resources calls for the management of gas demand
which would bring sustainability to the country’s gas sector. Demand-side management could
mitigate the gas sector’s challenges by managing gas consumption and rationalizing the
appropriate pricing mechanism. It is an effective method to manage natural gas consumption in
the country. The share of high BTU pipeline gas majorly facilitates domestic, power, and
industrial sectors. Out of the total availability of 926,068,109 MMBTU of pipeline gas
consumption, the domestic sector share accounts for 34 percent, followed by 28 percent for
power, 14 percent for other industries including textile and 11 percent for captive power (See
Table 2). Sui companies-wise data is provided in Annex-I.

Table 2. Pipeline gas consumption in MMBTU

Sectors SNGPL SSCG Total Pipeline Gas Share
Domestic 217,176,603 94,243,356 311,419,959 34%
Power 207,160,405 48,643,307 255,803,712 28%
Other industry incl. Textile 72,707,380 58,266,206 130,973,586 14%
Captive Power 35,508,033 69,723,866 105,231,899 11%
Fertilizer (as Feedstock) 43,519,196 19,594,683 63,113,879 7%
Transport (CNG) 22,184,863 3,636,825 25,821,688 3%
Commercial 16,480,637 8,452,265 24,932,902 3%
Fertilizer (as Fuel use) 6,943,785 46,443 6,990,228 1%
Cement 0 1,035,570 1,035,570 0%
Pakistan Steel Mill 0 744,686 744,686 0%
Total 621,680,902 304,387,207 926,068,109 100%
(Source: SSGC and SNGPL 2021-22)

The gas supply to the industry (general and captive) and power sectors could be managed by
providing alternatives through policy decisions by the government like changing the energy mix
for power generation by inducting more renewables (hydro and non-hydro). Similarly, the
government has also planned to disconnect the captive power plants and shift to the national grid
for better management of the gas within the industrial sector.

Demand-side management in the domestic sector is a sensitive exercise as it directly impacts

the livelihood of the general public. However, it has far-reaching impacts due to the higher
consumption of gas in the sector. Whereas domestic sector customers are very sensitive towards
any variation like gas supply through the pipeline at their doorstep, change in price, the use of
alternative appliances, and adaptability towards a change. Hence, the government must priorities
the demand-side management of the domestic sector through target interventions leading to a
reduction in gas consumption. Moreover, managing gas demand within different sectors can be

18
accomplished by substituting it with electricity and making appropriate changes in gas-
consuming devices, efficiency measurements, and consumption habits.

2.4.1 Demand-side management – Domestic sector

The domestic sector of Pakistan meets its energy demand required for cooking and
heating purposes from two primary sources including natural gas and LPG. The rest of the
energy demand is met through secondary sources such as firewood, charcoal, and kerosine oil.
As only 48 percent of the households in the country have access to gas including LPG for
cooking3. The consumption of two major energy sources in the domestic sector is given in Figure
10.

Figure 10. Gas and LPG consumption in domestic sector (Source: Energy Yearbook (EYB) [2016-2021])

Natural gas in the domestic sector is highly subsidized and readily available at the doorstep
through an extensive pipeline network developed by the Sui companies. Domestic customers
have been using such an important source of energy carelessly, without taking into consideration
the national importance of gas in economic development. Uninterrupted and cheap supply of
natural gas in the domestic sector has encouraged customers to replace conventional energy
sources such as wood, kerosine and charcoal with natural gas. Before the development of the Sui
distribution network, these conventional sources of energy were primarily used in the domestic
sector for cooking, water and space heating. Further expansion of its distribution could worsen
the present situation. However, the natural gas resources of the country are not sufficient to meet
the country’s demand which has pushed Pakistan towards expensive LNG imports from the

19
international market. Therefore, it has become a dire challenge for the government to create
sustainability in the gas supply for the domestic sector.

To initiate much-needed reforms leading to curtailment of the high demand for gas in the
domestic sector, demand-side management can be analyzed in detail by substituting gas with
electricity for different economic sectors and encouraging the use of energy-efficient appliances.
Before investigating the estimated substitution, slab-wise consumption and end-use consumption
are analyzed for managing the demand side of the gas in detail.

2.4.2 Gas consumption customers categories

To provide gas subsidies to the domestic sector and to protect lifeline customers from higher
gas rates, the government divided the customers into different slabs based on consumption per
cubic meter which is billed monthly. The previous customer tariff was divided into different
ranges according to the gas consumed by each customer. The range started from a minimum
consumption slab with a flat tariff of Rs. 172 per month. In this range, a flat tariff is applied even
if no gas is consumed. The highest slab in this range is with consumption above 400 cubic meters
per month which is charged Rs. 1,460 per MMBTU. Gas consumption varies monthly based on
variations in the seasons over the year. The total annual average consumption per month across
all slabs is recorded as 26,172 million CFt. While in the winter season gas consumption becomes
almost double. The peak consumption of gas in the winter season is witnessed in January for all
slabs is 51,618 million CFt. Surprisingly, in the annual average and winter season, the slabs
above 200 cubic meters have less consumption than the slab up to 200 cubic meters. This implies
that low-slab customers are also consuming a large amount of pipeline gas (see Table 3).

Ideally, consumption of higher slabs is meant to be higher in the winter season than the lower
slabs and the same pattern must be reflected in the number of customers i.e., minimum and lower
slab category customers must be moved to the higher slabs based on their increased consumption
from annual average to the peak.3

3
IEP team meeting with DG (Gas), Petroleum House, Ministry of Energy. February 03, 2023

20
 Table 3. Domestic sector consumption pattern
Annual Average Peak (January)
Gas Consumer
Slab Consumption/m Consumption/m
Tariff Customers Customers
(Cubic Meter) onth onth
(Rs./MMBTU) ('000) ('000)
(Million CFt) (Million CFt)
Minimum Flat 172.58 3,206 2,099 1,337 834
1st slab up to 50 121 1,365 8,918 725 9,523
2nd slab up to 100 300 3,702 9,065 3,556 18,630
3rd slab up to 200 553 1,779 4,253 3,400 14,641
4th slab up to 300 738 298 1,099 1,040 5,022
5th slab up to 400 1,107 66 542 271 2,331
6th slab above 400 1,460 32 196 118 637
Total 10,448 26,172 10,448 51,618
(Source: SSGC and SNGPL annual reports [2020-21] and natural gas customer prices by OGRA)

In the previous consumer tariff, consumer gas prices were not revised in accordance with the
OGRA’s determination. Resultantly shortfall/tariff differential reached Rs. 577 billion as of June
2022. Recently, the authority has revised consumer prices according to the estimated revenue
requirement. The domestic segment was focused to ensure socially affordable pricing along with
optimized previous slab benefits. The protected consumer's prices are based on the average
consumption of 0.9 hm3 in the winter months and non-protected slabs are ranging from up to 1
hm3 to above 4 hm3 (See Annex-II for details).

Since previous slab-wise data did not represent the actual slab-wise representation of the
consumption and number of customers, the new consumer tariff along with an increase in the
number of slabs for protected and non-protected has been introduced. Thereafter, Sui companies
must ensure the actual representation of domestic slab-wise consumption and its customers by
shifting lower slabs into higher slabs if consumption increases.

2.4.3 Domestic end-use seasonal consumption

Gas consumption in the domestic sector is a variable affected by the type of consumption and
temperature change. When analyzed annually, cooking remains a major source of gas
consumption across all consumption categories. However, when the consumption peak strikes in
January, the trend marks a visible change in the domestic consumption mix. As winter months
are usually cold across the country, domestic customers rely on natural gas for space and water
heating. The peak of space heating is higher than water heating as space heaters are used in
multiple rooms within a household4 and are less efficient as compared to water heaters.

21
 Pakistan’s current consumption patterns have also witnessed the same consumption trend
over the year. The average annual consumption trend reports that 76 percent of the gas used in
the domestic sector is for cooking purposes, followed by space heating and water heating.
However, this trend changes sharply for the peak month of January, with space heating
increasing to 47 percent, followed by 40 percent for cooking and 12 percent for water heating
(see Figure 11).

Figure 11. Domestic end-use gas seasonal consumption (Source: Author's calculation based on Pakistan Integrated
Energy Model (Pak-IEM)-2010, Social & Living Standard Measurement Survey 2019-20)

The consumption for space heating starts an upward trend in November and attains its peak of
47.5 percent of total consumption in January. In January, space heating even surpasses
consumption for cooking which is a constant practice in domestic households throughout the
year. The high consumption of gas for space heating starts in November and reaches its peak of
795 MMCFD in January encouraging the demand-side management model to target space
heating as a potential source of reducing demand in the domestic sector. On the other hand, water
heating also rises in the winter months, but its rise as compared to space heating is significantly
lesser (see Figure 12).

22
Figure 12. Seasonal gas consumption (Source: Author's calculation based on Pakistan Integrated Energy Model
(Pak-IEM)-2010, Social & Living Standard Measurement Survey 2019-20)

This sharp rise in gas consumption due to space and water heating is a primary reason for the
gas shortfall in the winter months which encourages the government to execute supply-side
management measures such as load-shedding through frequent gas supply cuts and hourly
scheduled provision of gas in the domestic sector. Considering the supply challenges due to the
spike in gas demand in the winter, the demand-side management model can be estimated for
substituting gas with electricity. It could also develop gas parity prices at par with electricity to
encourage customers to shift towards the use of energy-efficient appliances.

2.5 Estimation model for substitution of heating (space and water)

For analyzing the estimation model, we assumed that consumption slabs fall into low,
medium, and high consumption categories. The first four protected slabs in the range of 0.9 hm3
are assumed as low consumption category slabs, the slabs from 1 hm3 to 3 hm3 are medium
category slabs, whereas the last two slabs from 4 and above 4 hm3 are assumed to be high
consumption category slabs (See Annex-II for details). With the difference in the comparison of
slabs it can be assumed that despite a smaller number of customers present in the high
consumption category, their consumption remains fairly high as these customers are frequently
using natural gas for various purposes. Hence it is assumed that a larger portion of the gas is
being consumed by the high consumption category leading to a shortfall in the winter season and
supply disruptions in the country. This shortfall may be reduced or avoided by demand-side
management, including the substitution of natural gas with electricity in the domestic sector

23
along with gas price parity with electricity tariff to encourage high gas consumption customer
category to use electricity for space and water heating in the winter.

For an estimated model for substitution, it is pertinent to understand the consumption pattern
of different categories for space and water heating. Gas consumption of end-use customer
categories is assumed based on their consumption level, accessibility, and affordability of
different appliances for space and water heating. Customers falling in the high-consumption
category are considered to be the largest customers of gas for space and water heating while the
medium and low-consumption category customers use comparatively less gas for the aforesaid
purposes. High-category customers consume 88 percent of gas for water heating, while for space
heating 62 percent of gas is consumed by the same customers (see Figure 13).

Figure 13. Gas consumption by customer categories (Source: Author's calculation based on Pakistan Integrated
Energy Model (Pak-IEM)-2010, Social & Living Standard Measurement Survey 2019-20)

2.5.1 Estimated substitution of gas for heating with electric appliances

The substitution of gas used for space and water heating with electricity could result in a sharp
decrease in the natural gas demand driven by the domestic sector. In the gas substitution model,
domestic customers are encouraged to reduce their gas consumption by shifting to other energy
sources like electric appliances and solar water heaters. The idea of substitution of natural gas for
space and water heating involves the replacement of the commonly used inefficient gas-based
space and water heating devices with efficient heating appliances. The substitution of these two
purposes with electricity will help narrow the supply-demand gap created due to the extensive
use of quality natural gas in the winter season. Targeting medium and low-category customers

24
will not be effective as their annual consumption of gas is mostly limited to cooking. Therefore,
the substitution of space and water heating appears to be an attractive strategy to cap the demand
for natural gas in the domestic sector. The entire saving of gas would be extracted from the last
three slabs of the high consumption category.

The estimated substitution model is applied to high-consumption category customers in the

domestic sector who are using gas for water and space heating. The consumption of gas is
approximated for the year 2020-21 and the consumption for heating may vary with the change in
total consumption. The estimated substitution of the high-consumption category would result in
31,447 million CFt of gas conservation through water heating and 24,155 million CFt through
space heating. A total of 55,602 million CFt of gas would be saved by substituting gas appliances
with electric appliances for space and water heating (see Figure 14).

Figure 14. Gas savings in case of substitution of high customer category (Source: Author's calculation based on
Pakistan Integrated Energy Model (Pak-IEM)-2010, Social & Living Standard Measurement Survey 2019-20)
Besides substitution with electric appliances, inefficient conventional gas geysers could be
replaced with the latest solar water heaters in the country. Roof-top solar-based water heaters are
gaining attention in the rural and urban areas of the country as they are cheaper, easier, and
greener alternatives for water heating. Introduction of roof-top solar water heaters as a building
code across residential, public, and commercial buildings would be a novel energy transition
towards sustainability. Moreover, the media can also play a role in educating the general public
about the efficient utilization of natural gas and encourage them to move towards SWH and
electric appliances.

25
Limitations of the substitution estimation model: The substitution estimation model has
certain limitations as it is based on assumptions regarding consumption patterns by different
categories. Since IEP does not have access to the primary data sources of the gas sector, it has to
rely on the data provided by the gas sector stakeholders. The Sui distribution companies have
better access to the granular database regarding consumption per capita and an in-depth
understanding of the consumption patterns of different slabs. Further, this model can be
improved by using the bottom-up approach and the significance of the results will be greater
based on device-level data.

2.5.2 Estimated parity of gas prices with electricity tariff

Substituting natural gas requires a variation in both gas and electricity prices to
encourage the customers to reduce their habit of inefficient utilization of subsidized gas and shift
towards efficient electric appliances. Hence, electricity tariffs could be reduced in winter from
November to February, whereas gas prices could be increased to a point where gas and
electricity prices come to parity. Since the last two slabs are consuming the major share of the
gas for space and water heating, thus a need arises to change the gas tariff to make it equivalent
to the electricity tariff. The gas parity price could be presented with the development of the
following three different scenarios based on different electricity tariffs (see Table 4 and Figure
15). These scenarios are applied to the last three slabs consuming gas of more than 200 cubic
meters per month.

Scenario 1: Parity with the government’s winter package of a flat tariff of Rs. 12.96 per kWh
introduced by NEPRA in November 20215 for residential tariff would require gas prices to be
increased to Rs. 3,797 per MMBTU to bring it to parity with the electricity prices.

Scenario 2: Parity with NEPRA’s average residential tariff of Rs. 14.2 per kWh would require
gas prices to be increased to Rs. 4,166 per MMBTU to bring it to parity with the electricity
prices.

Scenario 3: Parity with the average basket price of Rs. 16.36 per kWh 2021-22 for electricity
generation would require gas prices to be increased to Rs. 4,793 per MMBTU to bring it to parity
with the electricity prices.

26
 Table 4. Estimation of parity price between gas and electricity for substitution
Parity Price Between Gas & Electricity
Gas Consumer
Consumer Winter tariff Average
Slabs Tariff Basket price
Category package Residential tariff
(Rs./MMBTU) 16.36/kWh
12.96/kWh 14.22/kWh
Low Protected consumers Not applicable
Up to 1 hm3 400
Up to 1.5 hm3 600
Medium Not applicable
Up to 2 hm3 800
Up to 3 hm3 1,100
Up to 4 hm3 2,000
High 3,797 4,166 4,793
Above 4 hm3 3,100
(Source: Author’s calculations based on NEPRA winter incentive package,
[https://nepra.org.pk/tariff/Tariff/KESC/2022/TRF-100%20Motion%20FG%20KE%2011-01-2021%20498-
500.PDF], NEPRA average residential tariff [https://nepra.org.pk/consumer%20affairs/Electricity%20Bill.php],
SOIR basket price 2021-22, OGRA domestic slab-wise tariff of gas)

Above mentioned scenarios are developed to illustrate the possible options for increasing
the gas tariff to reach parity with the electricity tariff. Moreover, its implementation can be
ensured by the primary stakeholders like NEPRA and OGRA after due consideration.

27
Scenario-1: Gas tariff parity based on winter package @ 12.96/kWh

(Source: Author’s calculations based on and NEPRA winter incentive package,

[https://nepra.org.pk/tariff/Tariff/KESC/2022/TRF-100%20Motion%20FG%20KE%2011-01-2021%20498-
500.PDF
Scenario-2: Gas tariff parity based on average NEPRA tariff @ 14.22/kWh

(Source: Author’s calculations based on NEPRA average residential tariff

https://nepra.org.pk/consumer%20affairs/Electricity%20Bill.php)
Scenario-3: Gas tariff parity based on average basket price @ 16.36/kWh

(Source: Author’s calculations based on SOIR basket price 2021-22)

Figure 15. Gas price parity scenarios with par of electricity tariff

28
2.5.3 Financial implications in wake of gas substitution with electricity

As the domestic sector is subsidized, high consumption of gas in the winter is not
economically viable for the country. Substitution of natural gas with electricity could provide
several benefits including financial implications for the gas sector and utilization of gas for more
efficient purposes as compared to space and water heating. The following are the key financial
implications in the case of substitution.

Least cost power generation: The benefits of substitution are not limited to financial savings
but allow economical utilization of indigenous natural gas in the winter as well. Overall, 5,042
GWh of power can be generated from the gas conserved through substitution to provide per unit
of least-cost electricity to the consumers. Utilization of local gas in the highly efficient gas power
plant can generate power with the least fuel cost of as low as Rs. 8.08/kWh compared to
expensive imported thermal fuels (see Table 5).

Foreign exchange savings: Moreover, the substitute of gas with electricity has the potential of
bringing excellent benefits in terms of annual gas conservation and reduction in the LNG import
bill. Hence, the government may avoid importing expensive LNG during winter months which
can reduce the energy import bill in the form of foreign exchange savings of 583 USD million
per year (see Table 5).

Table 5. Financial implications of substitution

Financial Implications Space Heating Water Heating Total
Least Cost Power Generation:
Gas Availability after Substitution
24,155 31,447 55,602
(Million CFt)
Total Electricity Generation (GWh) 2,191 2,852 5,042
Forex Savings:
Based on LNG Basket Price 2022
USD 10.69 per MMBTU
FX Saving (US$ million) 253 330 583
(Source: Author's calculation based on the average values of the gas power plants SOIR-2021-22 and
LNG basket price-PLL)

2.6 Demand side management for other sectors

Captive Power Plants: The general industrial sector consumes a major portion of the pipeline
gas. In the industrial sector, captive power plants including both export and non-export-oriented

29
plants are consuming a larger share of the pipeline gas. Presently, 1,152 CPPs are operating
through pipeline gas of SNGPL and SSGC systems which are supplying amount of 105 MMCFD
and 193 MMCFD of gas respectively (see Annex-I for detail). Recently it was decided to
disconnect the gas from CPPs and shift the plants to the national grid. But its enforcement needs
to be assured across all captive power plants for efficient management of indigenous resources.
However, there is a need to overcome the system constraints with grid connectivity.

Commercial Sector: Parallel to the substitution of gas with electricity in the domestic sector,
commercial sector gas substitution can be carried out. The commercial sector’s gas consumption
for space heating exponentially rises in the winter months. Along with the domestic sector, a
further reduction in the gas demand by the commercial sector can help reduce the overall gas
supply requirements of the country. Considering the fast-depleting reserves, policy interventions
may be needed to manage the demand across all sectors efficiently for the sustainability of the
gas sector.

2.7 Recommendations

2.7.1 Short-term

 Disconnection of gas to CPPs and shifting the industry to the national grid: The
government may remove the priority of gas from Captive power plants and shift the
industry to the national grid to ease the supply burden of gas.
 Media campaigns to educate the public: Educate people about the difficulties that the
government is facing to ensure a low-cost and sustainable gas supply in the country at a time
when international gas prices are highly inflated. Print, digital and social media campaigns can
be aired for creating awareness among the general public and encouraging the utilization of
electric efficient appliances and solar water heaters for space and water heating purposes.

2.7.2 Medium & long-term

 Review of slab-wise consumption mechanism: Since slab-wise gas consumer prices have
been revised, therefore, Sui companies must ensure the actual representation of domestic
slab-wise consumption and its customers by shifting lower slabs into higher slabs if
consumption increases.

30
 Natural gas substitution with electricity: The government can take policy measures to
gradually shift the high-consumption customers' category of the domestic sector from
natural gas to electricity for water and space heating. To reduce the demand for gas in the
domestic sector, electricity prices could be decreased, and gas prices could be increased
where prices come to parity. This will encourage gas customers to use electricity for space
and water heating in the winter.
 Solarizing the domestic sector: The government should create an enabling environment
for solarizing the domestic sector by ensuring solar water heating (SWH) as part of the
building code and providing soft loans and subsidized solarization programs. This will
curtail the issue of high electricity tariffs in the domestic sector and would allow consumers
to shift from gas to solar.
 Execution of substitution model in other sectors: In the commercial sector, gas
consumption for space heating rises in the winter months. With substitution in the
commercial sector, a further cut in gas consumption can help reduce the overall gas supply
requirements of the country.

31
 Box 2: Policy Analysis – Demand Side

Gas Allocation – Regional Analysis:

 India and Bangladesh prioritize the fertilizer and power sectors for gas consumption,
whereas Pakistan has prioritized the domestic and commercial sectors.
Gas customers' consumption categories:
 Total Annual average consumption per month across all slabs was recorded as 26,172
million CFt based on their routine-wise cooking consumption. Whereas the peak
consumption of gas recorded in January based for all slabs is 51,618 million CFt due to
space and water heating in the winter
 The protected slabs are assumed as low consumption category, the slabs from 1 hm 3 to 3
hm3 are medium category slabs, whereas the last two slabs are assumed ass high
consumption category.
 Domestic slab-wise consumption numbers representation can be improvised by the Sui
companies.
Domestic end-use seasonal consumption:
 Gas consumption in the domestic sector varies seasonally. The highest peak is recorded in
January due to the preference of customers for space and water heating purposes.
 The consumption trend reports that 76.3 percent of the gas is used for cooking purposes,
followed by 12.3 percent for space heating and 11.4 percent for water heating.
 1,035 MCFD of the total gas consumed by the high consumption customer category for
water heating and 785 MMCFD for space heating by the same category.
 Therefore, it is assumed that a larger portion of the gas is being consumed by the high-
consumption category leading to a shortfall which triggers demand-side management.
Estimated substitution of gas with electricity
 Substitution of natural gas with electric appliances for the high-consumption customer
category in the domestic sector can be carried out to reduce the consumption of natural gas.
during peak winter months.
 To encourage gas customers to use electricity for space and water heating in the winter,
electricity prices could be decreased, and gas prices could be increased where prices come
to parity.
 By targeted substitution of the high-consumption category, it is anticipated that a total of
55,602 million CFt would be saved through space and water heating
 Along with substituting with electric appliances, there is also a need to replace inefficient
conventional gas geysers with the latest solar water heaters in the country.
 Media can also play a role in educating the general public and encourage them to move
towards SWH and electric appliances.
Financial implications in wake of substitution:
 A total, of 5,042 GWh of power can be generated from the least fuel cost of gas as low as
Rs. 8.08/kWh compared to expensive imported thermal fuels by utilizing the gas conserved
through substitution.
 Moreover, the substitute of gas would bring a reduction in the LNG import bill of 583
USD million per year by avoiding the import of expensive LNG during winter months.
Demand side management in other sectors:
 The demand for natural gas for various economic sectors will keep increasing in the

32
 future.
 Enforcement to disconnect the gas from CPPs and shift them to the national grid needs to
be assured across all captive power plants with the assurance of overcoming the system
constraints with grid connectivity.
 Parallel to the substitution of the domestic sector, commercial sector gas substitution can
be carried out as the commercial sector’s gas consumption for space heating exponentially
rises in the winter months.

33
 3. Policy Analysis: Gas Pricing Regime
The current gas pricing regime of the country is not financially sustainable as it has caused
serious financial implications including a deficit in the annual cost recovery from the end-
consumer, accumulation of the gas circular debt, and burden on the public sector LNG importing
companies. The current pricing regime is also increasing the gap between supply and demand.
The present financial situation of the gas sector calls for timely policy interventions to improve
the financial sustainability of the sector. These policy interventions could consider dimensions
like the cross-subsidy mechanism being used in the country, a revision in the present pricing
regime, and a comparative analysis of LNG, and LPG prices.

3.1 Consumer prices and subsidy mechanism

Natural gas consumer prices vary in different sectors depending on the applicable subsidies.
The government provides subsidized gas to the domestic sector to protect them from price
shocks and the fertilizer industry to ensure the availability of fertilizer at lower rates. The rest of
the pipeline and dedicated field gas provided to the power, industrial, commercial and transport
sectors is unsubsidized, and these sectors pay the entire delivered cost of gas/RLNG. Therefore,
only the domestic and fertilizer sectors have different consumer prices and applied subsidy
mechanisms. The natural gas prices given to different economic sectors should be in accordance
with the estimated revenue requirements (ERR) of the Sui companies. OGRA notifies the gas
tariff for various categories and slabs of consumers. However, since 2013-14, the government
has not been able to revise the consumer gas prices adequately according to the market dynamics
including LNG purchase price and cost of local gas production. The lag in the timely revision of
consumer gas prices has resulted in a revenue shortfall/tariff differential of Rs. 577 billion by
June 2022. Even though natural gas prices have increased for all sectors in 2020, the delay in the
timely revision of gas prices has further inflated the revenue shortfall4.

Due to international energy market inflation, the gap between the LNG basket price and
consumer selling prices has widened which has created a large vacuum in the shape of subsidies
over the years (see Figure 16). The present pricing regime of the gas sector operates on an
entrenched cross-subsidy mechanism. In the cross-subsidy mechanism, domestic customers are
divided into six different slabs based on their consumption through a cascading tariff. Similar to

4
For detailed breakup of system-wise cross subsidy, refer to Annex-III

34
the power sector where lifeline (low-income) customers are protected through a subsidy on the
tariff, the gas sector also provides tariff subsidies for low-consumption customers. Considering
the need to revise the subsidy mechanism in the domestic sector, the government has devised a
mechanism to introduce “Protected Consumers” in the domestic sector which will be provided
with socially affordable prices in the shape of budgeted subsidies. Protected consumers will fall
in the first 4 slabs while non-protected consumers will be included in the next 6 slabs.

In the year 2018-19, the government decided the diversion of LNG to the domestic sector
which is highly subsidized for protected consumers of gas. Natural gas has been provided to
protected consumers through a cross-subsidy mechanism which resulted in high differential
accumulation. In the ongoing fiscal year, the government has taken a step to reduce the
differential accumulation by providing two budgeted subsidies of Rs. 40 billion and Rs. 25
billion each.

Apparently, the concept of providing a subsidy to low-consumption customers appears to be

a rational step which protects the lifeline customers against inflation. However, it cannot be
established that customers with low consumption always fall in the category of lifeline customers
who require subsidies.

Figure 16. Cross subsidy pattern (Source: SNGPL and SSGC)

3.2 Comparative price analysis between natural gas and LNG

International LNG prices have large variations due to several factors including the pace of
production and politico-economic developments in the world. The spot prices of LNG went as
high as USD 30.60 per MMBTU in the previous year. The price of long-term contracts is also

35
pegged to the price of brent. On the other hand, indigenous gas prices have seen an insignificant
rise when compared to the change in the LNG delivered cost. Due to the increasing variance
between LNG and natural gas, natural gas prices have increased only modestly from 4.21 to 5.02
USD per MMBTU in the same period.

LNG spot prices have substantially increased since 2018. This, in turn, has increased the
basket price of LNG from 14 USD per MMBTU to 30.60 USD per MMBTU in 2022 (see Figure
17).

Figure 17. The highest basket price of LNG (Source: OGRA [https://ogra.org.pk/rlng-notified-prices-3]and PLL)

The substantial variance between the LNG basket price and the natural gas price is the amount
paid by the government in the form of a subsidy when imported LNG is passed to domestic
consumers at the price of natural gas. Therefore, considering the inclining trend of international
LNG prices and growing circular debt, the government could pass on the entire cost of the
delivered LNG to ensure an uninterrupted supply of gas to meet surging demand in future. As of
2022, the LNG basket price is reported as 14.64 USD per MMBTU (see Table 6).

36
 Table 6. Price analysis of natural gas vs LNG (USD/MMBTU)
2017 2018 2019 2020 2021 2022
LNG Basket Price 9.18 10.21 11.65 10.41 8.42 14.64
Natural Gas Price 4.21 4.08 3.91 5 5.02 5.02
Price Variance 4.97 6.13 7.75 5.41 3.40 9.62
Exchange Rate 105 110 136 158 160 178
Price Variance (Rs./MMBTU) 522 672 1,054 857 545 1,717
(Source: OGRA price notifications [https://ogra.org.pk/gas-notified-prices], State Bank of Pakistan annual average
PKR exchange rate and author’s calculations)

The government has already initiated the process of passing the entire delivered cost of LNG
to the consumers which also includes some of the new residential connections. However, the
current pace of shifting all consumers to the actual LNG delivered cost is not sufficient and the
process needs to be expedited. Unlike the domestic sector, the power sector and captive power
plants are already paying the delivered cost of LNG.

3.3 Comparative price analysis between LNG and LPG

Globally, LPG is considered a primary substitute for natural gas. In Pakistan, LPG is used in
the domestic sector where a natural gas supply is not possible due to the limitations of the gas
distribution network. The comparative price analysis of LPG and LNG suggests that the basket
price of LPG is higher than LNG which could create financial difficulties if its import is
increased. Supply of LNG through pipelines in areas and sectors where the distribution system is
absent would be more affordable and accessible compared to the expensive. As of 2022, the
average annual LNG basket price is cheaper than the LPG basket price (see Table 7 and Figure
18).

37
 Table 7. Price analysis for LNG and LPG (USD/MMBTU)
2017 2018 2019 2020 2021 2022
LNG
LNG price 6.85 7.81 9.08 7.34 6.40 10.69
Terminal charges 0.42 0.48 0.71 0.91 0.48 0.66
Other Import costs and margin 0.22 0.29 0.35 0.65 0.58 1.29
T&D and adjustments cost 1.7 1.62 1.52 1.5 0.96 2.00
LNG basket price with existing UFG 9.18 10.21 11.65 10.41 8.42 14.64
LNG basket price with an additional 15%
10.56 11.74 13.4 11.97 9.68 16.84
UFG
LPG
Producer price [Rs./Metric Ton] 57,831 55,268 69,187 64,057 75,244 138,292
Producer price 12.15 11.09 11.3 8.97 10.4 17.11
Marketing margin 7.35 7.05 5.7 4.88 4.82 4.36
Petroleum levy 0.98 0.94f 0.76 0.65 0.64 0.58
LPG basket price 20.49 19.08 17.75 14.5 15.86 22.06
(Source: OGRA price notifications [https://ogra.org.pk/gas-notified-prices] and author’s calculations)

The comparison of the cost of LNG, LPG, and natural gas clearly shows the high basket price
of LPG as compared to its competitors. While natural gas is the cheapest source, LNG lies at a
moderate rate as compared to highly expensive LPG. In ordinary market situations, LNG has the
potential to replace LPG in the domestic sector (see Figure 18).

Figure 18. Natural gas, LNG and LPG price comparison. (Source: OGRA price notifications
[https://ogra.org.pk/gas-notified-prices], PLL and author's calculations)

38
 3.4 Recommendations

The current gas pricing regime is not reflective of the LNG basket price to the domestic
sector. The government may take policy decisions to truly reflect the LNG-delivered cost in the
gas pricing mechanism.

 Cost-reflective pricing regime: Supply of LNG through pipelines in areas where a gas
distribution system is absent would be more affordable and accessible compared to the
expensive and hazardous LPG. Cost-reflective pricing regime can be enforced by passing
on cost-based LNG prices to the consumers would reduce the burden of subsidy and also
the demand for gas.
 Revision of consumer prices: The consumer prices should be revised according to the
ERR of the Sui distribution companies. The government has initiated a price revision
which was due in 2020. The delay in the revision of gas prices has resulted in the
accumulation of a large revenue shortfall/tariff differential. Hence to avoid the
accumulation of tariff differential and sustainability of the gas sector, prices need to be
revised as per its due timeline.
 Regular implementation of budgeted subsidy: In the previous years, the budgeted
subsidy was not provided to the gas sector which created hurdles in the annual revenue
collection. Now, the government has decided to provide subsidies to the protected
consumers similar to the power sector where lifeline consumers are protected with a
budgeted subsidy. Following this, the practice of providing regularly budgeted subsidies
should be continued to reduce the differential accumulation in the future.

39
 Box 3: Policy Analysis – Gas Pricing Regime

 The current gas pricing regime of the country is not financially sustainable as it has caused
a deficit in the annual cost recovery, accumulation of the gas circular debt, and burden on
the public sector LNG importing companies.
Natural Gas Consumer Prices:
 Even though natural gas prices have increased for all sectors in recent years, the increase is
not according to the cost that the government incurs in the gas supply.
 The natural gas prices require revision as per the market dynamics including LNG
purchase price and cost of local gas production.
Natural gas subsidy:
 The government has started providing budgeted subsidies to the gas sector. This practice
should be continued to reduce the accumulated differential in the gas sector.
 The consumer prices could not be revised timely since 2013-14 leading to the
accumulation of a tariff differential of Rs. 577 billion till June 2022.
Price comparison between natural gas, LNG and LPG
 International LNG prices have large variations due to several factors; the spot prices of
LNG went as high as USD 30.60 per MMBTU in the previous year.
 The substantial variance of USD 9.62/MMBTU between the LNG basket price and the
natural gas price is the amount paid by the government in the form of a subsidy.
 LPG, which is more expensive than LNG, is used as an alternative in areas where the
supply of gas is not present.
 Supply of LNG through pipelines in areas and sectors where the distribution system is
absent would be more affordable and accessible.

40
 4. Policy Analysis: Supply-side
Historically, Pakistan has produced a sufficient amount of gas to fulfil the country’s energy
requirements. However, after the peak production of 4,271 MMCFD recorded in 2012,
production started declining due to no discovery of major fields, the law-and-order situation in
the potentially gas-rich areas and insufficient investment by local and foreign E&P companies
because of lower wellhead prices and unfavorable conditions. The expansion of the gas
distribution network, increase in registered consumers, continuous depletion of domestic natural
gas reserves, and provision of natural gas to the transportation sector in the form of compressed
natural gas (CNG) led to a widening of the supply-demand gap, which further aggravated the
situation.

4.1 Growing import of LNG

To overcome the supply-demand gap in natural gas, the government decided to import LNG
in 2015. Initially, 282 MMCFD of LNG was imported in 2016, and this has increased
aggressively over the years, reaching 1,070 MMCFD by 2021 (see Figure 19).

Figure 19. Import of LNG (Source: SSGC)

Therefore, the contribution of imported LNG to the total gas supply of the country has been
gradually increasing while domestic gas production has slowly declined. Consequently, the share
of LNG in the primary energy supply for gas has increased from 282 MMCFD in 2016 to 1,070
MMCFD in 2021 (see Figure 20).

41
Figure 20. Primary supply of gas (Source: Energy Yearbook (EYB) [2016-2021] and SSGC)

4.2 Increasing reliance on net LNG imports

Based on Pakistan Energy Outlook Report6 by IEP, it is forecasted that gas will continue to
serve as a fundamental energy resource of the country for facilitating economic sector demand.
The fast-depleting indigenous pipeline and dedicated field gas are triggering more reliance on
imported LNG as a supplement source. LNG demand is based on the peak demand incurred in
the winter specifically in January and results in shortfall and supply cuts. The net available
supply for gas by 2030 is expected to be 3,828 MMCFD (see Table 8).

Table 8. Future primary supply for gas (MMCFD)

Energy Supplies 2020 2021 2022 2025 2030
Pipeline Gas 1,964 1,841 1,706 1,601 1,210
Dedicated Field Gas 1,007 1,120 1,051 901 697
Primary Supply 2,971 2,961 2,757 2,502 1,907
Net LNG import 887 1,070 1,011 1,237 1,921
Net Available Supply 3,858 4,031 3,768 3,739 3,828
(Source: EYB 2020-21 and author’s calculations based on LNG peak demand incurred in the winter [January])

A large slice of the future gas demand of the country will be met through LNG imports, and
the rising share of LNG in the future gas demand is visible. Because the domestic sector mostly
depends on gas, higher peaks in future demand for both natural gas and LNG can be observed.
The peak demand forecast is based on gas consumption in the winter season (with the highest
peak in January) (see Figure 21).

42
Figure 21. Primary peak demand for gas (Source: SSCG, SNGPL and author’s calculations based on LNG peak
demand incurred in the winter [January])

4.3 LNG procurement

Future projections of LNG imports considering the seasonal variations in consumption show a
sharp increase in the coming years. Based on peak demand in winter months like January, the
country will need to import over 1,900 MMCFD by 2030 (see Figure 22).

Figure 22. LNG import (Source: SSGC, 2020 and author’s calculations based on LNG peak demand incurred in the
winter [January])

Currently, Pakistan imports 75 percent of LNG through term contracts and 25 percent through
spot purchasing. Consequently, 09 cargoes per month of LNG are purchased through term
contracts (see Table 9). Considering the demand, 03 more cargoes per month are procured

43
through spot purchasing. Hence, a maximum of 12 cargoes are being imported per month (see
Annex-IV for details).

Some of the existing long-term contracts with Qatar Gas include a clause for contract revision
in 2026, which also included a revision of the price cap and the supplier could demand an
increase in the LNG delivered cost or just walk away from the contract. Therefore, due to more
reliance on LNG, Pakistan should expedite the process of entering into fresh long-term LNG
import contracts.

Table 9. LNG term contracts

Contract No. of Cargoes No. of Cargoes /Month
Term Contract Slope (%)
Duration /Month (as of 2022) (2024-Onwards)
PSO-Qatar 2016 15 years 13.37% 05 05
PSO-Qatar 2021 10 years 10.20% 03 04
PLL-Eni SpA 15 years 12.14% 01 01
(Source: Pakistan LNG Ltd. [PLL])

4.4 LNG import infrastructure

At present, Pakistan has only two LNG terminals located at Port Qasim with a combined
capacity of about 1,200–1,400 MMCFD to manage the current LNG import (see Table 10).
Detailed data is provided in Annex V.

Table 10. LNG terminal capacity

Installed Capacity Maximum Annual Cargo unloading
Terminal
(MMCFD) Capacity (No. of Cargos)

Terminal I 600–690 72
Terminal II 600–750 72
Total 1,200–1,440 144
(Source: Pakistan LNG Ltd. [PLL])

Considering the current and forecasted peak demand for LNG, the country’s available
terminal capacity can facilitate LNG imports until 2025. Thereafter, an additional terminal with a
minimum capacity of 600 MMCFD and 19 cargos per annum will be required to manage the
anticipated import requirement of 1,900 MMCFD by 2030 (see Figure 10). Moreover, a
comprehensive study is required for LNG terminal infrastructure development and expansion to
meet the future import needs of the country. The need for the development of floating storage
regasification units (FSRUs) could be assessed depending on the projected LNG imports by

44
2030. Presently, a major portion of LNG is imported through Port Qasim. To distribute the
imported LNG load of Port Qasim, Sonmiani Bay and Gwadar Port could be considered for new
FSRUs (see Figure 23).

Figure 23. Terminal requirement for LNG imports (Source: Energy Yearbook (EYB) [2000-2021] and author’s
calculations)

4.5 Introducing gas trading companies in Pakistan

Public sector natural gas and LNG trading companies are benefiting governments around the
world which are involved in trading natural gas and LNG through short-term spot purchases and
long-term procurement contracts. This business model of these gas trading companies is not
limited to the procurement of hydrocarbons but also extends to risk-management services, swaps
in energy markets, hedging short- and medium-term exposures, financial assessment of LNG
markets, and chartering of LNG vessels5. Such gas trading companies provide governments
involved in LNG and gas procurement with a shield against the impacts of short, medium, and
long-term price fluctuations and sustainability in the natural gas supply chain. Globally, several
countries are benefiting from the concept of gas trading companies including India’s GAIL India
Limited, China’s Sinopec Shanghai Petrochemical Co. Ltd., Korea’s POSCO International, and
Japan’s JERA.

Gas trading companies could be beneficial in situations like Covid-19 when natural gas and
LNG prices were reduced to unprecedented low values and the first quarter of 2022 when the

5
EMIS GAIL Global (Singapore) Ltd. https://www.emis.com/php/company-
profile/SG/Gail_Global__Singapore__Pte_Ltd_en_3890875.html (access date 31 January 2023)

45
Russo-Ukrainian war resulted in historic inflation in energy prices. As in long-term contracts
LNG prices are pegged to the prices of crude oil, the Covid-19 wave pushed LNG trading
companies to trigger the Force Majeure clause and decline the supply of LNG vessels are
surprisingly low rates. A similar situation was created when LNG prices inflated from May to
September 2022. In these circumstances, gas trading companies could help the country steer out
from the predicted price risks in the future.

Pakistan can benefit from the concept of gas trading companies that have allowed gas and
LNG procurement flexibility to governments around the world. In 2015, Pakistan introduced
Pakistan LNG Limited (PLL), a wholly owned subsidiary of Government Holdings Private
Limited (GHPL), with a mandate to import, purify, buy, store, supply, distribute, transport,
transmit, process, measure, metering and selling of natural gas, LNG, re-gasified LNG to meet
the country’s gas requirements. The role of PLL can be extended to risk management, hedging,
chartering of LNG vessels, getting off-take rights from international LNG traders, sale of LNG in
international markets, and performing LNG cargo swaps with international suppliers. At present,
the operational flexibility of PLL is restricted by the checks and balances of PPRA on the
procurement activities of PLL. To allow a breathing space for PLL to extend its operations
beyond LNG purchase, specialized PPRA rules may be devised for PLL and other gas trading
companies if introduced in the future.

4.6 Developing gas storages facilities in the future

Natural gas can be stored in two possible modes including subsurface exhausted gas well
storage and over-the-surface storage in salt caverns, such as Khewra Salt Mines, for utilization at
later stages. In the long-term planning window of the gas sector, Pakistan could explore the
future possibilities of developing gas storage facilities in the country. Pakistan has an ample
amount of exhausted gas wells that could be studied to frame out the development of gas storage
infrastructure. As witnessed in 2022, LNG prices had a multiplier effect on the energy import bill
of the country and such situations in the future could be averted by storing the imported LNG
when the international prices are down. The stored gas could then be consumed in the peak
consumption months.

Pakistan can extract financial benefits from LNG storage facilities. In 2021-22, LNG prices in
the international market fluctuated across the year where the two highest peaks were recorded in

46
November and March. Pakistan can procure LNG at nominal rates for storage when international
prices are down. Instead of procuring LNG during months when international prices are high, the
country can utilize stored RLNG which will provide financial protection to the energy sector. In
the 2021-22 price scenario, the LNG storage option can save more than 15 USD per MMBTU of
imported gas from November to March (based on the example shown in Figure 24).

Figure 24. Stored RLNG price in comparison to monthly international prices (Source: Asian Development Bank,
ISGS, Techno-Economic Feasibility Study by Ramboll, 2021)

Currently, Pakistan does not have any existing subsurface or over-the-surface (Salt Caverns)
gas storage facility where re-gasified LNG can be stored. A technical and financial feasibility
study of an exhausted gas well has been conducted in Khorewah, Sindh. The development of the
studied gas well will require 6 years for the completion of the storage infrastructure useable for
the next 25 years. Moreover, a fresh feasibility study may be conducted to identify the cost and areas
for such storage. In the presence of required cushion gas in the wellhead, a total of 15 cargoes per
year will be required to recharge the gas well. Similarly, the capacity charge calculated to store
natural gas in the wellhead is approximately USD 4 per MMBTU6.

The total cost required for gas storage depends on the storage capacity charge and the
delivered cost of LNG. If the delivered cost of LNG is low, the financial benefit of gas storage
could be increased. Pakistan could consider a gas storage option by 2030. Based on the LNG
forecast spot price of 2030 and an estimated storage capacity charge, the total cost required to
recharge an exhausted well would be USD 1,583 million (see Table 11).

6
For detailed breakup of gas storage financial layout, refer to Annex-VI

47
 Table 11. Gas storage infrastructure cost
Cost of Gas Storage USD / MMBTU
Storage Capacity Charge 4
LNG Spot Price (DES) 8.37
Stored Gas Cost 12.37
Total Cost Required to Recharge a Well (USD Million) 1,583
(Source: Asian Development Bank, ISGS, Techno-Economic Feasibility Study by Ramboll, 2021)

For a reliable gas storage infrastructure, the cost required to store natural gas is based on the
capacity charge. The natural gas tariff is usually based on a cost-plus regime in which an agreed-
upon rate of return is paid to the investor investing in gas storage development. In line with the
long-term planning for the development of gas storage facilities, regasification capacity also
needs to be expanded in the future. Based on the current LNG import infrastructure of Pakistan,
the regasification capacity of a single LNG terminal is 600 MMCFD. To import 15 cargoes for
gas storage, the development of one additional terminal of 650 MMCFD will be required in the
future. As each cargo carries 3000 million CFt of LNG, recharging the wellhead will require 75
days of terminal operation. Further, to transfer the natural gas through a pipeline for wellheads,
the development of a pipeline infrastructure is also required.

4.7 Analysis of unaccounted-for gas (UFG) losses

UFG is the difference between the amount of metered gas that is injected into a gas
transmission and distribution system and the amount of metered gas that is delivered to the end
consumer during a financial year. The cause of UFG can either be technical, e.g., leaks, or non-
technical, e.g., measurement and accounting errors or theft.7 The country currently has two gas
distribution systems, namely SSGC and SNGPL, which incur UFG losses. The yearly trend of
losses can be seen in Figure 25. Detailed data is provided in Annex-VII.

48
Figure 25: Comparison of SNGPL and SSGC UFG losses (Source: SNGPL and SSGC)

The amount of UFG losses is annually determined and added to the final revenue requirement
of SNGPL and SSGC by OGRA. The number of losses in PKR for Sui distribution companies
shows that losses of SSGC are significantly greater than the SNGPL system over recent years
(see Figure 26).

Figure 26: Comparison of annual SNGPL and SSGC UFG losses (Source: SNGPL and SSGC final revenue
requirements 2018-2022, OGRA)

4.7.1 Component-wise breakdown of UFG losses

A component-wise breakdown of UFG losses shows that losses due to theft are a minor issue
in SNGPL. However, other losses due to leakages, minimum billing, measurement errors, and
bulk to retail shift are significantly higher (see Figure 27). In SNGPL, losses in the retail sector

49
(industrial, commercial, special domestic, and domestic consumers) are higher than in the bulk
sector (power, fertilizer, and cement).8 Detailed data is provided in Annex-VII.

Figure 27. Component-wise UFG losses in SNGPL (Source: SNGPL)

In the SSGC system, the highest losses are due to theft followed by leakages and
measurement errors. To control theft in the system, further identification of theft between
registered consumers and non-registered consumers is required to identify the volume pilfered by
non-consumers. Network investigation and identification of old and corroded pipelines will help
reduce leakages (see Figure 28).9 Detailed data is provided in Annex-VII.

Figure 28. Component-wise UFG losses in SSGC (Source: SSGC)

Therefore, SNGPL and SSGC need to work on component-wise UFG reduction targets. Due
to the different nature of the losses, a single UFG reduction mechanism cannot be applied to both

50
systems. Sui companies should work on reducing individual components of the UFG losses
instead of targeting the reduction of the overall UFG.10

4.7.2 Policy matrix to reduce UFG losses in the sui companies

The component-wise analysis of UFG suggests that the management of each component of
the UFG should be tackled differently in SNGPL and SSGC. Therefore, a policy matrix has been
developed in light of the different UFG components to devise a mechanism for component-wise
UFG reduction in SNGPL and SSGC.

UFG Reduction Policy Matrix

UFG Components Recommended Actions to Reduce UFG

- Identifying tampered meters.

- Identifying bypassed meters.
Theft - Investment and management plan for theft control.
- Identifying areas where consumption is higher than average.
(SSGC)
- Proper segmentation of the Sui distribution system (SNGPL)

- Identifying and replacing malfunctioning and sticky (out of

order)/passing unregistered gas (PUG) meters which results in
measurements below the 40M3 minimum billing allowance.
Minimum Billing
- Use of smart metering technology.
- OGRA to revisit minimum billing policy of fixed bill for meters
consuming gas below 40M3.

- Improving network segmentation.

Measurement Errors - Replacing malfunctioning, sticky/PUG and slow meters.
- Reducing domestic meter expiry to replace them early.

- Survey to highlight law and order affected areas.

Law and Order - A bill recovery mechanism for the law and order affected areas

51
UFG Components Recommended Actions to Reduce UFG
- Reducing the number of leaks per km to at least 2 in the
distribution system.
- Network maintenance and rehabilitation for both overhead and
Other (Leakages, underground leakages. Network rehabilitation rate to 10 percent
Increase in Gas per annum to be achieved.
Prices, and BTU
- Identifying and replacing malfunctioning and (PUG) meters.
Equivalence)
- Improving network segmentation, particularly in SNGPL.
- North-south gas pipeline to reduce BTU equivalence losses
(SSGC).
(Source: KPMG-OGRA Unaccounted for Gas Study, 2017)

4.8 Promoting exploration and production activities

In the upstream gas sector of Pakistan, discoveries of new gas reservoirs have always
been low. Since the discovery of Sui gas reserves, Pakistan has not achieved any large discovery
in the last ten years. The average size of the discoveries becomes less than 50 bcf. The bidding of
E&P investors could not be arranged from 2013 to 2018 and bidding rounds between 2019 to
2021 were not encouraging. In a situation when the already active gas reserves are depleting fast
and the reliance on imported LNG is creating financial constraints, the discovery of fresh gas
reserves could provide a much-needed breathing space to the country’s natural gas supply chain.

Directorate General Petroleum Concessions (DGPC) under the Ministry of Energy

(Petroleum Division) is the primary regulator of gas E&P activities in Pakistan. DG(PC) office
could ensure that E&P companies interested to work in Pakistan are offered contracts according
to the international best practices, including internationally practiced models of E&P contracts
and procedures developed by the Association of International Petroleum Negotiators. By
bringing ease of doing business for the investors and improving the working conditions for the
international explorers like a safe working environment, E&P activities in the country could
flourish. DG(PC) could facilitate the E&P companies in hassle-free approvals for the
commencement of area feasibility studies, grant and extension in the exploration license, grant
and extension in the development and production lease, and sharing of geological/geophysical
data with the companies.

52
 Gas discovery is a function of probability and the companies interested in E&P activities
initiate projects based on the probability of finding new reservoirs. As Pakistan has not been able
to strike a gas reserve like Sui, the low probability has discouraged investors from investing in
gas E&P activities.

At present, Pakistan offers the higher wellhead gas exploration rate of USD 6.60 per
MMBTU to exploration companies compared with other regional countries (see Table 12). Even
then, the E&P activities in the country do not show an encouraging trend, so it attracts the
attention of government towards the solution of other issues except wellhead price. These
activities could be increased through steps like providing benefits of ease of doing business
comparable with regional countries and having the potential to attract exploration companies that
could speed up discovering gas reserves in the country. Pakistan has not been able to strike any
offshore gas reservoir. If exploration companies are given attractive wellhead prices, Pakistan
can initiate rigorous offshore exploration as well. Also, international oil companies with
available capital and technical capacity could be encouraged to engage in oil/gas development in
Pakistan by introducing preferential policies on exploration at the edge of the mature basin and
basins around the border. The law-and-order situations and higher operational costs in areas like
Balochistan and KPK are not encouraging companies to proceed with exploration activities. The
government may develop a protected exploration environment on E&P sites. The private sector
and the government could jointly conduct venture investment and enhance its exploration in
shallow offshore areas with proven reservoir conditions.

Table 12. Regional comparison of wellhead prices

Country Wellhead Exploration Price (USD/MMBTU)
Pakistan 6.60
India 4.20
Bangladesh 3.24
Malaysia 5.01
(Source: India domestic regional prices, http://petroleum.nic.in/sites/default/files/ngsourcedata.pdf, Bangladesh
Energy Regulatory Commission
https://epbd.com/view/details/article/NzI0Nw%3D%3D/title?q=petrobangla%2C+companies+fail+to+justify+gas+p
rice+a (Access on dated 15-02-2023)

In case of any new gas field discovery in the country, an increase in the indigenous gas
supply would provide a cost-protection against the expensive long-term and spot purchase of
LNG from international markets (see Figure 29). Considering the projected surging gas demand

53
by 2030, the wellhead price as of Petroleum Policy 2012 would still be cheaper than the peak
LNG delivered cost.

Figure 29. Price analysis for wellhead gas price (Source: Author’s calculations based on different petroleum
exploration & production policies, OGRA price notifications [https://ogra.org.pk/rlng-notified-prices-3] and PLL)

4.9 Conversion of low BTU gas

Low BTU gas is categorized as having a gross heating value of less than 450 BTU/scf. 11

Methane is not the primary constituent because the gas contains higher fractions of moisture,
carbon dioxide, and/or other unwanted gases. In Pakistan, low BTU natural gas is used as a raw
material feed-gas to produce fertilizer. Although low BTU gas serves the fertilizer industry, still
it needs to be utilized efficiently.

Treating low BTU gas to pipeline standards requires additional processing and costs. Low
BTU sour gas can be converted into high BTU sweet gas by using either natural gas stripping or
gas separation membranes. In separation through the membrane, a capacity charge of 3.23 USD
per MMBTU will be required, while a cost three to four times higher than this value is required
in the stripping process.12 After adding a wellhead price of 6.6 USD per MMBTU of Zone-III in
the conversion cost, the new cost is still lower than the expensive imported LNG.

Technologies that process sour gas using membranes13 are still in the development phase, and
a detailed technical and financial feasibility study of BTU conversion is required. The Qadirpur
gas field can be used as a study site for this purpose.

54
 4.10 Gas import through cross-country pipelines

In the long-term development of a sustainable gas supply in the country, gas import sources
other than the import of LNG could be considered. At present, Pakistan has two active
considerations for the development of cross-country gas pipeline projects including
Turkmenistan-Afghanistan-Pakistan-India (TAPI) and Iran-Pakistan (I-P) gas pipelines. These
pipelines once constructed could provide a much-needed escape from regular long-term and spot
purchasing of LNG cargoes which are not only expensive but also requires additional processing
and transportation infrastructure such as regasification units and virtual gas pipelines. TAPI,
which is expected to have a life span of 30 years would have a total length of 1,680 km.
Similarly, the I-P gas pipeline if constructed would have a length of 781km. The Inter-State Gas
Company responsible for the completion of these projects could consider reviving the work on
these pipelines. However, Pakistan first needs to ensure contractual commitments of the parties
involved in TAPI such as ensuring per unit transit fee and transit royalty payments of gas passing
from Pakistan to India. For TAPI and IP, the indicative gas price depends on the percentage of
brent rates. Gas price is derived from gas price formula agreed in Gas Sales Purchase Agreement
(GSPA’s) signed with the counter parties and subject to periodic revisions/change. For the two
proposed cross-country gas pipeline metrics, (see table 13).

Table 13. Cross-country gas pipeline metrics (2020-21)7

TAPI IP
Distance Covered
1,680 km 781 km
(Pipeline Length)
Indicative Gas Price USD 9-13 per MMBTU
Construction Cost USD 10 Billion USD 2.2 Billion
Source: ISGS, Ministry of Energy

4.11 Development of Pakistan stream gas pipeline

The distribution of natural gas in the country is divided into two major sections, a Southern
section operated by SSGC, and a Northern section operated by SNGPL. As LNG in Pakistan is
imported in the Southern section at Port Qasim, Karachi, SSGC is the first receiver of RLNG in
the system. As the number of consumers in the SNGPL system is greater than in the SSGC

7
Estimates from Inter State Gas Systems, Ministry of Energy

55
system, the gas consumption of the SNGPL system has remained higher in the previous years
(see Figure 30). Therefore, to supply natural gas in the Northern section, RLNG is transported
through the existing pipeline network of the Sui companies.

Figure 30. System-wise gas consumption pattern (Source: SSGC and SNGPL)

At present, the depletion of pipeline quality is 19 percent per year for SNGPL and 8 percent
per year for SSGC. Such a rapid rate of depletion results in high UFG losses in the form of
leakages. Therefore, efficient transportation of RLNG to the SNGPL system requires a dedicated
pipeline. The proposed Pakistan Stream Gas Pipeline (PSGP) which is expected to connect Port
Qasim (Karachi, Sindh) with Kasur (Punjab) has the potential to meet the country’s gas
transportation needs. The expected transportation capacity of 1,100 km pipeline would be 1.2
Bcfd and it would take 42 to become operational. The total cost of the project is USD 3 billion
(2021 estimates)8. The proposed project planned between the governments of Pakistan and
Russia could contribute to resolving the issues of availability and supply of gas within Pakistan,
particularly in the winter months (see Figure 31). Similarly, Gwadar-Nawabshah Gas Pipeline
(GNGP) proposed in 2016 could be considered for construction in the future once Pakistan
develops new FSRUs in Gwadar.

8
Estimates from Inter State Gas Systems, Ministry of Energy

56
Figure 31. North-South gas pipeline map (Source: Author’s design based on GeoFabrik)

4.12 Recommendations

The following is a comprehensive set of policy-based recommendations to improve the

natural gas supply side in the country.

4.12.1 Short-term

 Introduce gas trading companies: Globally gas trading companies are benefiting the
governments in financial risk management, contract swapping, hedging, procurement and
sales of LNG for a better supply chain of natural gas. Pakistan should consider following
these footprints by extending the mandate of PLL to allow the company to achieve
sustainable gas supply targets.
 Encouraging E&P activities: The country may encourage local and foreign firms to
participate in gas E&P activities. Initiatives such as creating a favorable working
atmosphere for E&P companies through ease of doing business, providing a safe working
environment and attractive wellhead prices comparable with regional countries offered by
the government could boost their confidence in the gas E&P sector of Pakistan.
 Perform a feasibility study for low BTU conversion: A detailed study on low BTU gas
conversion should be carried out through third-party consultants to make a feasibility plan
for efficient utilization of low BTU gas reserves for power generation and domestic
consumption.

57
 Reduce UFG losses: Sui companies can work on reducing UFG losses by:
- Setting a realistic target for UFG reduction by analyzing the loss in each UFG component
with international best practices.
- Devising a mechanism to work on the component-wise UFG reduction targets instead of
solely working on a combined limit.
- Developing a UFG reduction program in collaboration with mutual technical assistance
between the Sui companies.
 Specialized rules for gas procurement: Considering the frequent variation in LNG spot
prices in the international market, the Public Procurement Regulatory Authority (PPRA)
rules should be supportive of the LNG procurement agencies of the country. Particularly in
the development of gas trading companies, specialized PPRA rules are inevitable. For
instance, rules like 13(1) which restricts the response time to be less than fifteen days for
national and thirty days for international competitive bidding, need to be reconsidered to
support LNG procurement agencies in timely procurement of the LNG cargoes.

4.12.2 Medium and long-term

 Improve and enhance LNG terminal capacity: The country has enough available
terminal capacity to manage LNG imports until 2025. Thereafter, an additional terminal
with a minimum capacity of 600 MMCFD and 19 cargos per annum will be needed to
facilitate the anticipated import requirement of 1,900 MMCFD by 2030.
 Enhance the regasification capacity: Currently, single cargo unloading, and
regasification duration are almost 5 days. To meet future LNG imports, the regasification
duration needs to be decreased so that a maximum number of cargos can be unloaded per
month.
 Develop gas storage facilities: To avoid expensive LNG imports in the future, Pakistan
may consider working on gas storage facilities by 2030. Gas storage can be carried out in
both subsurface gas wells and over the surface salt caverns. Storing cheaper gas procured
during the summer and utilizing it in the winter months will help reduce the country’s gas
import bills. Gas storage facilities can help save more than 15 USD per MMBTU of the
LNG imported into the country.
 Maintain or increase long-term contracts: Government has only three active long-term
contracts, some of the existing term contracts include a clause for contract revision in 2026.

58
 Therefore, Due to more reliance on LNG, Pakistan should expedite the process of entering
into fresh long-term LNG import contracts for a smooth and undisruptive supply of gas.
 Gas Import through neighboring countries: To reduce the dependence on expensive
LNG imports from spot markets, Pakistan could consider pipeline import of natural gas
through neighboring countries. The proposed Turkmenistan-Afghanistan-Pakistan-India
(TAPI) project can supply 1,350 MMCFD of gas while the Iran-Pakistan (I-P) gas pipelines
project can supply 750 MMCFD of natural gas if constructed in the future. The Inter-State
Gas Company responsible for the completion of these projects could consider reviving the
work on these pipelines.
 Develop Pakistan Stream Gas Pipeline: Expedite the development of the North-South
gas pipeline. Because the anticipated import of LNG by 2030 will increase to 1,900
MMCFD, the pipeline project should be completed before 2025 to meet the growing gas
demand in the North. After the completion of the pipeline, the gas supply can smoothly be
carried from south to north. Moreover, a feasibility study of a potential cross-border gas
pipeline should be carried out.

59
 Box 4: Policy Analysis – Supply Side

Natural gas production:

 Pakistan's natural gas production grew considerably in the early decade of 2000 and climbed to
a peak of 4,271 MMCFD in 2012.
 Natural gas is expected to remain a fundamental energy supply for all economic sectors in the
future.
LNG import:
 In 2015, Pakistan initiated LNG imports to overcome the gas production deficiency.
 LNG imports have grown from 282 MMCFD in 2016 to 1,070 MMCFD in 2021.
 The net available supply for gas by 2030 is expected to be 3,828 MMCFD.
LNG procurement:
 Currently, Pakistan imports 75 percent of LNG through term contracts and 25 percent through
spot purchasing.
 Consequently, 09 cargoes per month of LNG are purchased through term contracts and 03
more cargoes per month procure through spot purchasing.
Future long-term LNG contracts:
 Some of the existing long-term contracts with Qatar Gas include a clause for contract revision
in 2026, and the supplier could demand an increase in the LNG delivered cost or just walk
away from the contract.
 Due to more reliance on LNG, Pakistan should expedite the process of entering into fresh long-
term LNG import contracts.
LNG import infrastructure:
 Presently, Pakistan has two LNG terminals with a combined capacity of about 1,200–1,400
MMCFD to manage the imports.
 Additional terminals with a minimum capacity of 600 MMCFD will be required to manage the
anticipated import requirements of 1,900 MMCFD by 2030.
Gas Trading Companies:
 Pakistan needs to introduce gas trading companies in light of the international best practices to
create sustainability in the gas supply chain.
 PLL is working with a similar mandate, however, there is a need to allow operational
flexibility to PLL including the provision of specialized PPRA rules for efficient trade or LNG
cargoes.
Gas storage:
 LNG storage infrastructure can be developed to store LNG procured in the off-peak seasons.
 The capacity charge calculated to store natural gas in the wellhead is approximately USD 3.5
per MMBTU depending on the wellhead conditions.
 The LNG storage option can save more than 15 USD per MMBTU in the import bill from
November to March.
 Expansion of the regasification capacity to allow the additional import of cargoes for gas

60
 storage in the future.
Unaccounted for gas (UFG):
 UFG is the amount of gas in the system that has not been included in annual accounts.
 Sui companies need to work on component-wise UFG reduction targets because a single UFG
reduction mechanism cannot be applied to both systems.
Exploration and production:
 Promotion of E&P activities is required to increase natural gas production and lessen reliance
on imported LNG.
 E&P activities can be enhanced through ease of doing business, competitive exploration rates
and a safe working environment for the E&P companies.
 With indigenous gas production through enhanced E&P, the cost of gas would still be cheaper
than the peak LNG delivered cost.
Low BTU gas conversion:
 Low BTU gas has a gross heating value of less than 450 BTU/standard cubic foot.
 Low BTU gas be converted into high BTU gas through the available gas sweetening processes.
 To enhance the pipeline gas supply, a detailed technical and financial feasibility study of low
BTU conversion is required at the Qadirpur gas field.
Development of Cross-Country Pipelines:
 Pakistan can secure a cost-efficient supply of natural gas by entering long-term cross-country
gas pipeline contracts.
 TAPI and I-P gas pipeline projects are already under consideration, and they could prove to be
a potential gas supply source for the country.
Development of Pakistan Stream Gas Pipeline:
 Pakistan faces a gas shortage in the northern part of the country particularly in the winter
months as RLNG is added to the Sui system in the south.
 PSGP could provide the northern part of the country with an ample supply of natural gas to
meet the demand.

61
 5. Action Plan Policy Matrix
Analyzing in detail the demand and supply side of the gas along with a detailed comparative
analysis of natural gas, LNG and LPG prices, the government may take the policy intervention
by following recommended action plan for the sustainability of the sector. The action plan policy
matrix outlines a plan of actions to be taken along with key responsibilities of the concerned
ministry/department for the improvement and sustainability of the gas sector. The matrix is
divided into short-, medium- and long-term actions.

62
 Action Plan Policy Matrix

Policy action Proposed Process Action Center Output

Short-term

Introducing gas Extending the mandate of PLL Ministry of Energy Gas trading
trading companies and other companies to trade the (Petroleum Division) companies could
gas from the international market help the country
steer out from the
predicted price risks
in the future

Utilization of low Perform a third-party feasibility Ministry of Energy Conversion of low

BTU gas study for efficient conversion of BTU gas to high
low BTU to high BTU gas and its BTU for use in
power and domestic
utilization.
sector

UFG reduction in Addressing component-wise Ministry of Energy Reduction in the

the Sui distribution UFG reduction by setting up (Petroleum Division) annual UFG losses.
system component-wise reduction targets and OGRA

Reducing tariff Implement a Cost-reflective Ministry of Energy Substantial

differential pricing regime and use of (Petroleum Division) reduction in tariff
budgeted subsidy and OGRA differential

Gas conservation Disconnect the gas to CPPs and Ministry of Energy Increased gas
through efficient shift the industry to the national Petroleum & Power supply to power and
utilization grid Division, domestic sector.

Medium and long-term

Increase LNG  Enhance the regasification PSO/PLL/Private  Reduction of gas

capacity to maximize cargo Sector supply deficit in
imports to meet the
unloading the future.
future demand  Maintain existing contracts and  Assured supply of
explore new long-term gas
contracts for a smooth supply of
gas after 2026.

63
Policy action Proposed Process Action Center Output

Increase in gas Expedite the development of the Ministry of Energy Increased supply of
transmission North-South gas pipeline. (Petroleum Division) gas in the SNGPL
capacity system.

Gas demand Solarization of the domestic Ministry of Energy Reduction in the

management in the sector by providing soft loans (Power Division) domestic gas
domestic sector demand for space
and water heating
Gas demand Ministry of Energy Reduction in gas
Execution of substitution model
management in (Petroleum Division) demand in other
in other sectors than the domestic
non-domestic
sectors.
sectors

64
Annex-I: Sui companies-wise pipeline gas consumption
Table AI-1. Pipeline gas consumption

SNGPL
MMBTU MMCFT
Sectors N. Gas LNG Total N. Gas LNG Total
Domestic 216,893,527 283,076 217,176,603 213,668 364 214,032
Power 18,005,499 189,154,906 207,160,405 23,296 189,644 212,940
Other industry incl.
33,056,528 39,650,852 72,707,380 27,664 41,496 69,160
Textile
Captive Power 2,925,072 32,582,961 35,508,033 2,912 35,308 38,220
Fertilizer (as
27,102,081 16,417,115 43,519,196 34,944 16,016 50,960
Feedstock)
Transport (CNG) 18,407,865 3,776,998 22,184,863 17,472 3,640 21,112
Commercial 14,331,346 2,149,291 16,480,637 14,196 2,184 16,380
Fertilizer (as Fuel
2,258,507 4,685,278 6,943,785 2,912 4,004 6,916
use)
Cement 0 0 0 0 0 0
Pakistan Steel Mill 0 0 0 0 0 0
Total 332,980,425 288,700,477 621,680,902 337,064 292,656 629,720
SSGC
MMBTU MMCFT
Sectors N. Gas LNG Total N. Gas LNG Total
Domestic 94,241,327 2,029 94,243,356 95,732 0 95,732
Power 11,703,248 36,940,059 48,643,307 11,648 36,764 48,412
Other industry incl.
55,243,101 3,023,105 58,266,206 56,784 728 57,512
Textile
Captive Power 68,468,190 1,255,676 69,723,866 66,612 3,640 70,252
Fertilizer (as
19,594,683 0 19,594,683 19,292 0 19,292
Feedstock)
Transport (CNG) 635,401 3,001,423 3,636,825 728 2,912 3,640
Commercial 7,644,133 808,133 8,452,265 7,644 728 8,372
Fertilizer (as Fuel
0 46,443 46,443 0 0 0
use)
Cement 1,035,570 0 1,035,570 1,092 0 1,092
Pakistan Steel Mill 744,686 0 744,686 728 0 728
Total 259,310,339 45,076,868 304,387,207 260,260 44,772 305,032
(Source: SSGC and SNGPL 2021-22)

65
Annex-II: Domestic (Residential) consumer tariff (February-2023)
Table AII-1. Residential consumer slab
Slabs Rs./MMBTU
Protected
Up to 0.25 hm3 121
Up to 0.5 hm3 150
Up to 0.6 hm3 200
Up to 0.9 hm3 250
Non-Protected
Up to 1 hm3 400
Up to 1.5 hm3 600
Up to 2 hm3 800
Up to 3 hm3 1,100
Up to 4 hm3 2,000
Above 4 hm3 3,100
(Source: OGRA gas sale prices, https://www.ogra.org.pk/gas-notified-prices [Accessed on dated 16-02-2023] )

66
Annex -III: Cross subsidy pattern
Table AIII-1. System-wise cross subsidy (Million PKR)
SNGPL
Sector 2017 2018 2019 2020 2021 2022
Power 8,335 868 7,451 8,167 5,968 7,438
CNG 6,593 5,008 9,234 14,154 13,992 12,897
General 5,983 2,647 3,244 6,574 8,943 9,519
Commercial 5,497 4,136 6,626 9,097 8,511 7,293
Fertilizer (10,439) (11,416) (13,540) (14,603) (14,454) (13,936)
Domestic (41,695) (52,421) (57,929) (61,144) (61,898) (71,657)
Total (25,727) (51,178) (44,915) (37,755) (38,938) (48,446)
SSGC
Sector 2017 2018 2019 2020 2021 2022
Power 7,330 (6,230) (12,666) 1,416 2,141 335
CNG 6,454 5,164 2,733 6,913 1660 344
General 13,976 5,106 (20,245) 11,334 18,177 10,873
Commercial 2,925 2,287 1,631 3,755 3,919 3,263
Fertilizer (5,623) (7,321) (11,547) (9,524) (8,866) (10,276)
Domestic (21,713) (28,612) (49,575) (48,867) (46,322) (48,572)
Total 3,349 (29,606) (89,669) (34,973) (29,291) (44,033)
Source: SNGPL and SSGC

67
Annex -IV: LNG procurement process
Table AV -1. Procurement mode
Procurement Mode

Term contracts: 75 percent

As of 2022:
Spot: 25 percent
Term Contracts: 83 percent
As of 2024:
Spot: 17 percent
Average 1-3 / months
Spot purchasing:
Demand-driven purchase on market-based price

Importing Agencies Pakistan LNG Limited (PLL) and Pakistan State Oil (PSO)

Purchasing Agencies SNGPL, SSGC & K-Electric

Regulatory Agencies PPRA & OGRA

Source: Pakistan LNG Ltd. (PLL)

Table AIV -2. Terms contracts

No. of Cargoes
Contract No. of Cargoes /Month
Contract Slope (%) /Month (as of
Duration (2024-Onwards)
2022)

PSO-Qatar 2016 15 years 13.37% 05 05

PSO-Qatar 2021 10 years 10.20% 03 04

PLL-Eni SpA 15 years 12.14% 01 01

Source: Pakistan LNG Ltd. (PLL)

68
Annex -V: LNG import infrastructure
Table AV. Infrastructure and capacity
Infrastructure and Capacity
Quantity: 2
Available Terminals:
Location: Port Qasim, Karachi
Terminal Installed Terminal I 690 MMCFD
Regasification Capacity (Max): Terminal II 750 MMCFD

Monthly Capacity (Max): 12 cargoes/month

Single Cargo Unloading and

5 days
Regasification Duration:

Size: 3,000 million CFt

Vessel Size and Energy
140,000 m3 of LNG
Contents:
Energy Contents: 3,200,000 MMBTU (Approx)

Annual Cargoes Arrival (Max): 144 cargoes/year

Average Operational Days: 365 (Terminal 1 & II)
Source: Pakistan LNG Ltd. (PLL)

69
Annex -VI: Technical and financial breakup of gas storage infrastructure
development
Table AVI-1. Gas storage infrastructure14
Gas Storage MMBTU
Wellhead Capacity 128,000,000
Cushion Gas Required 84,000,000
Annual Gas Extraction 44,000,000
Single LNG Cargo Capacity 2,940,000
Total Cargoes Required to Recharge Well 15 (No.)
(Source: Asian Development Bank, ISGS, Techno-Economic Feasibility Study by Ramboll, 2021)

Table AVI-2. Capacity charge for gas storage

Capacity Charge Components (USD/MMBTU)
Debt Principal Repayment – Foreign 2.30
Debt Interest Payment – Foreign 1.50
Fixed O&M 0.09
Insurance Tariff 0.01
Return on Equity (ROE) 0.09
Total Capacity Charge 4.00
(Source: Asian Development Bank, ISGS, Techno-Economic Feasibility Study by Ramboll, 2021)

70
Annex -VII: Sui companies-wise gas consumption, UFG losses and its components
Table AVII -1. Gas consumption and UFG losses (Million CFt)
Sui Company 2016 2017 2018 2019 2020 2021

Consumption 404,019 378,497 363,191 377,047 356,088 360,808

SSGC
UFG 64,280 58,012 74,953 72,644 68,625 54,496

Consumption 535,061 614,755 550,317 738,663 650,093 709,948

SNGPL
UFG 46,652 39,547 49,882 52,576 48,256 34,406
Source: SNGPL and SSGC

Table AVII -2. Component-wise breakdown of UFG losses of SSGC (Million CFt)
UFG Component 2016 2017 2018 2019 2020 2021

Theft 30,290 27,108 31,855 30,874 29,165 23,161

Law and Order

1,850 1,896 5,621 5,448 5,147 4,087
Affected Areas

Leakages 17,356 15,663 20,237 19,614 18,529 14,714

Measurement
14,784 13,342 17,239 16,708 15,784 12,534
Errors
Increase in Gas
3,214 2,900 3,748 3,632 3,431 2,725
Prices

Total 64,280 58,009 74,952 72,644 68,625 54,496

Source: SSGC

Table AVII -3. Component-wise breakdown of UFG losses of SNGPL (Million CFt)
UFG Component 2016 2017 2018 2019 2020 2021

Theft 5,894 4,739 3,355 2,680 1,370 425

Law and Order

11,526 11,982 14,629 15,391 16,176 10,069
Affected Areas

Others 29,232 22,826 31,898 34,505 30,710 23,912

Total 46,652 39,547 49,882 52,576 48,256 34,406

Source: SNGPL

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