KARACHI (April 14 2010): The country is expected to face worst gas shortage in the next three to four years, considering the fact that the demand is increasing and most of the gas supply projects, expected to commission within next two years, have been delayed or in litigation, experts said. These projects include Uch-II development project, Qadirpur gas compression project, Sinjhoro and Tando Allahyar gas project.
"Although the actual demand for gas cannot be calculated due to limitation of data, however, the two state owned gas utilities have recently given their gas demand projection based on actual requirement from various sectors and based on their projections, it is expected that gas shortage to grow by 1.7 billion cubic feet per day (bcfd) in FY10," Farhan Mahmood at Topline Securities said.
The gas shortage is expected to increase to 2.7bcfd in FY14, he added. However, he said, if above projects start production during next two years, the shortfall will reduce to 2.2 bcfd by FY14. In this scenario, gas management would be a major challenge for the government. "We believe that domestic and industrial sectors would be the top priority for the government, given the fact that these two sectors do not have alternative energy resources," he said.
It is expected that the gas demand will grow with the cumulative annual growth rate (CAGR) of seven percent. The sector wise data shows that 32 percent of the country's gas is being consumed by power sector followed by 25 percent by industries, 17 percent by domestic sector while the rest is by fertilisers, cement and transport. With rising electricity shortage, demand for gas by power sector would remain on the higher side for the next few years.
The actual demand for gas by power sector would be higher by 65 percent (more than 600 mmcfd) in FY10 as compared to FY09. He said that the overall demand is expected to rise by 4.9bcfd in FY10 to 5.7bcfd in FY14. While only in FY10 and FY11, demand is projected to increase by 14 percent and 12 percent, respectively. This is due to higher load on dual-fired power plants for electricity generation.
Though several gas projects are in pipeline, which could improve gas supplies going forward, however, we believe due to project delays and litigation's gas supplies would marginally increase. Thanks to the additional gas production from Tal and Latif blocks which minimised gas shortage by 250-300mmcfd. The projects which are already in pipeline include UCH-II development plan (160mmcfd), Sinjhoro project (31mmcfd) and Tando Allahyar project (278mmcfd).
With limited gas supplies compared to demand, gas management would be the key challenge for the government during next three to four years. With no major breakthrough on imported gas projects, the country might face worst gas shortage. As far as the sector wise gas load management is concerned, priority should be given to the domestic and industrial sectors since no alternate is available. Though kerosene and LPG can be used for heating purpose for domestic consumers, but it would be far expensive than pipeline gas.
As far as gas usage in transport sector is concerned, which has 7 percent share in overall gas consumption, gas supplies would be diverted to domestic sector, we believe. Owing to this, we might see gradual shifting by CNG users towards petrol. We expect CNG gas load shedding to start in southern region as well in couple of years.
Though, actual gas demand by power is anticipated to be higher, the actual allocation would remain on the lower side, we believe. This is due to availability of alternative resource like furnace oil (FO), though the most expensive way of generating electricity.
Impact of gas shortage on gas utilities would be neutral. The E&P companies on the other hand have the opportunity to excel their drilling activities. It is expected that the oil marketing companies (OMCs) would be better off given the fact that the reliance would be higher on FO based power generation. Moreover, any diversion by consumers from CNG to petrol would increase OMCs earnings.
view source