The federal government has asked the provinces to implement weighted average cost of gas (WACOG) pricing and supply of domestic gas and imported liquefied natural gas (LNG) to various consumer categories, moving away from ring-fenced pricing and supply.
“The long-awaited ‘political consensus’ on WACOG must be reached as soon as possible, ideally before the end of this year, to remove the anomaly between the prices of indigenous and imported gas, and the associated adverse impact on the sector’s financial stability,” Special Assistant to the Prime Minister on Petroleum and Power Tabish Gohar said earlier this month.
The key policy contradiction is that the government has committed to set pricing for a mix of imported and domestic gas for some categories while offering considerably lower rates for others. For example, the government has committed to a set charge of $6.5 per unit of local and imported gas for export industries, although imported costs might often exceed $13 per unit, as is the case these days.
That would imply that the whole expense of WACOG would be borne by three sectors: general industry, which would raise production costs and bear the brunt of the hike, and compressed natural gas (CNG), which would no longer be cheaper than the competing fuel — petrol.
According to a recent study from the Petroleum Division’s directorate general of liquid gases, irregular RLNG demand patterns were jeopardizing the LNG supply chain by raising line pack to unsafe levels, resulting in high pressure and domestic gas curtailment. In other situations, such irregular demands quickly exhausted the line pack, resulting in low system pressure.
“Lack of adequate gas/LNG storage exposed the gas transmission network to huge risks of ‘take or pay (term contracts) resulting from frequent demand/supply mismatches due to huge variations in the power sector’s projected demand and actual consumption for RLNG,” according to the report, which also stated that four new RLNG-based power plants of approximately 5000MW will not be dispatched on economic merit order beyond 2023. Over the next two years, the merit order dispatch of these four plants will be quite low, and if transmission limitations are overcome, dispatch may be a minor pressure.