It is increasingly becoming clear that RLNG has issues of irregular pricing and other supply chain issues like availability of infrastructure.
In the wake of dwindling local gas production, the government is almost frantically looking to ways to close the demand-supply gap. It is trying to divert gas from captive power plants to other sectors, a move that has been opposed by the textile sector. It appears that RLNG is not the panacea it appeared to be earlier.
Although RLNG will remain a major gas resource in light of dwindling local supplies, for energy security and stability it may be wise to add to resource diversity by examining alternative sources. In this space, we examine the prospects of liquid fuels in meeting the fuel supply gaps of power plants.
Substantial investment has been made in RLNG combined cycle power plants which are highly efficient in terms of energy consumption. Gas supply to these plants had to be curtailed last December from 350 mmcfd to 240 mmcfd due to heavy winter gas demand by the domestic sector; both supply and pricing issues were the possible reasons. LNG prices reached unaffordable high levels in the same period. High LNG prices in the winter are a routine matter, but this winter, it became extraordinarily high.
Consequently, RFO continues to be used; it has become cheaper than gas in many instances. However, only steam plants can use RFO, which cannot be used in more efficient gas turbines combined cycle power plants. Instead, diesel has been used. Diesel is very expensive and also diverts supplies from the transport sector. Diesel-based power costs twice – Rs15-20 per kWh as compared to Rs7-10 – as much as RLNG, even on combined cycle power plants.
Gas demand has been increasing. In the meanwhile, K-Electric is facing a power shortage and has to install a power plant on an urgent basis for which gas has to be provided out of the current infrastructure. LNG terminal utilization has been erratic as well for a variety of reasons. It is very difficult to balance RLNG supply with demand on an hourly basis. The excess may have to be vaporized, if such intricate balance is not maintained. There are Take-or-Pay limitations as well. In the coming years, the demand and supply gap may increase due to infrastructural issues. Pipeline capacity is limited and may not come up on time to match the demand.
It may thus be advisable to look into other liquid energy sources that can be utilized in power plants, such as naphtha and condensate. Naphtha is produced by oil refineries as a byproduct. For naphtha’s local utilization in the form of a naphtha cracker facility that could produce petrochemicals (plastics), naphtha is exported. Condensate is also exported and utilized by oil refineries. Condensate is produced from local gas production. It is a lighter crude oil that is suspended in the gas stream. In earlier days, it used to be utilized as gasoline.
In many jurisdictions, naphtha has been used in gas turbine power plants. Some 11000 MW of such capacity has been on naphtha in India. However, in India, there is other better utilization of naphtha for producing petrochemicals. Similarly, condensate has also been used in gas turbines. It is a question of economics and availability. An added advantage of liquid fuels is storage possibilities; gas cannot be stored, at least in the current circumstances when there is no gas storage facility.
Altogether, in the year 2018-19, around one million ton of condensate and naphtha has been exported; condensate exports were of 553,907 tons, while 418,941 tons of naphtha was exported. Naphtha exports have been going down. A few years back, it was exported as much as one million tons. Perhaps its local use has increased for high-octane gasoline production. Recently, PPL has announced the export of 400,000 tons of condensate. This indicates an adequate surplus of both naphtha and condensate.
In these circumstances, KE may be well advised to look into these resources to use partially or wholly, instead of solely depending on the government’s promises of allocating gas. Karachi has been suffering from power shortages and in the coming years it may become even worse in the absence of both capacity and energy supply reinforcement. The government may also like to look into the prospects of using naphtha/condensate, especially in the intervening years.
This is proposed as an interim solution till the gas sector supply chain is stabilized, which may not take less than 5-7 years – although longer-term issues of energy security and diversity would remain. One of the two, naphtha or condensate, should be able to provide the gap-balancing role. The large gas demand variation between summer and winter will remain, possibly with large LNG price variations. It is always good to build options.
Condensate, however, is flammable and has to be stabilized before it is transported. As condensate is being exported regularly, stabilization equipment may already be there. There may be economic issues as well. Condensate is sold at crude oil prices or maybe at a slight premium. At 60 USD/bbl, the condensate price should be around 10 USD/MMBtu. The winter price of LNG can be 14 USD/MMBtu plus 2 USD processing and transport margin. It is in the winter that there is a demand-supply gap which is likely to increase with time, in addition to pipeline infrastructure issues. Naphtha can be cheaper than condensate.
Finally, the glitter of LNG is fading, due to LNG terminal issues and recent price volatility and supply issues. There is no better solution than local gas. Local gas is cheaper almost by 50 percent on the average. More attention should be paid to the development of local resources.
The writer is a former member of the Energy Planning Commission and author of ‘Pakistan’s Energy Issues: Success and Challenges’.
