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Shortage of gas needs to be tackled as early as possible to save CNG sector

By Dr Noor Fatima

What is next for Gas industry? Development of Compressed Natural Gas (CNG) infrastructure has a history of proven success in many Western and Asian countries. The current market conditions in Pakistan indicate that there exists potential for renewed and expanded need for CNG infrastructure, policies and plan.

The CNG industry has an important role to play to give energy sector security in the face of rising oil prices and the current economic downturn in the country. Today North America, Asia, and Europe are great natural gas market.

The increasing market is also cause of political tensions between suppliers, who exert their resources as a political tool, and consumers, who worry about the cost and security of this supply. This market has more distortion as natural gas is unlike oil, which is traded at the same price everywhere. The CNG is competing with natural gas usage in electricity generation and industrial use. If a product or company gets more expensive or exploitative the other always drives it out of the marketplace, which is what happened in the Pakistan energy market. This might come true for the CNG market also as they have increased their margin too high. Economists usually frame the question of equity or distribution within the context of a trade-off with efficiency or growth.

Presently, in addition to electricity the CNG sector is posing a great challenge to the government. The doctrine of privatisation is based on the belief that private sector will perform more efficiently than public sector and it was pursued by the IMF and the World Bank in 1990s for Pakistan mainly for power sector. In Pakistan, the outcome of privatisation policies has not been very popular. The beneficiaries of privatisation policies are not general public, but elites in business and power corridors. So many failures leave us with a basic question that should we believe in market economics?

Pakistan tops the countries that use the CNG as an alternate fuel for vehicles. Argentina and Brazil are the two other countries with the largest fleets of CNG vehicles. Many private investors also came up for investment in the sector and Oil and Gas Regulatory Authority (OGRA) was also established for the regulation between the CNG investors and the consumers. According to the Competition Commission of Pakistan, over 2.5 million vehicles were converted to the CNG which means 35% of the total vehicles are running on CNG. Since the tariff of the CNG was fixed half than the petrol prices, till last year, therefore it attracted many investors with an investment of over 800 million dollar.

The gap between demand and supply of the gas led to a severe crisis. Pakistan’s total gas consumption is eight billion cubic feet per day (bcfd), whereas total production is only four bcfd — shortfall of 50 percent.

The CNG dealers are pressuring the government to increase the per kilogramme price of the gas. It is, however, very strange that the state-run Pakistan State Oil’s chain of retail CNG stations have also stopped supply of gas to consumers. The Petroleum Ministry seems to be either helpless or, for that matter, supporting the crisis in the interest of the two per cent elites of this country.

Despite attractive investment in the sector, the question is what brought this catastrophic situation that shook the whole sector. Whether it was myopic decision of the government in 2004/05 to allow the CNG as an alternate fuel or was it policy implementation failures.

One of the problems, for sure, was the issuance of licenses without a planning of demand and supply. The gas pipelines installed in 1970s for the domestic users have now been linked to the petrol stations and CNG stations, affecting the efficient supply of gas. Shortage of gas needs to be tackled as early as possible, otherwise the oil consumption will increase, causing pollution and huge burden on national exchequer.

According to sources in the SNGPL, the current annual production of CNG is increasing by 7% against growth in demand of nearly 40%. This shows that the annual shortfall of CNG is more than 400%. Likewise, the total output of gas pipeline companies in the country is around about 2,000 million cubic feet per day (mmcfd), while consumption is 2,800mmcfd.

The Author is presently working as Chairperson of International Relations & Politics of International Islamic University

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