Gas shortages hit, Refinery closures loom

Gas shortages have forced disconnections for industry while refineries closures are looming around the country due to rising furnace oil stocks that the power sector is not lifting. This winter finds the country in an unusually sharp fuel supply crisis. All this was foreseen when tenders for winter LNG cargoes failed and refiners were warning for months of forced closures if their inventories continue mounting. Profit brings you a close look at the unfolding crisis.

APTMA, SNGPL square off as gas crisis worsens

Industry cries foul as gas supplies are disconnected with the onset of winter. 

The much anticipated winter gas shortages finally arrived last week, pitting the government and its utility companies in a battle of wills and narratives against industry owners who cried foul as their connections were severed to curtail demand. 

Over the weekend, reports surfaced that production activities in half of the entire textile export industry had come to a complete or partial halt after the Sui Northern Gas Pipelines Ltd stopped gas supply to the captive power plants (CPPs) compelling the industry to run on electricity.

To put that into perspective, Pakistan’s textile industry is the largest in the country. It is the largest contributor to an already weak export bill at around $3.5 billion in 2020, contributes nearly 10% to the GDP, and employs about 45% of the total Labor force in the country from farmers to skilled workers in factories. 

On the other hand, the government has accommodated longstanding demands of the textile industry with  a conviction that none of its predecessors did. One of the leading demands was of “rationalising” gas prices between north and south zones – Punjab and Karachi – to provide gas at $6.5 per mmbtu, the unit in which gas prices are usually denominated. From November 30, however, the government revised this to $9 per mmbtu instead keeping in view the rising price of LNG, drawing sharp protests from industry, which took the tariff revision to court and won a stay order against it less than two weeks later. The court action did not go down well with the government.

And the main issue isn’t even the shutting down of the CPPs. During the winter months the textile export industry expected their CPP gas connections to be cut. They were naturally not happy about it but they knew it would happen and could have prepared accordingly. The main bone of contention is that the government has allegedly shut down not just the CPPs, but also the cogeneration gas connections as well (cogen are the second kind out of three different gas connections that the textile industry uses – more on this later). 

Sui Northern Gas Pipeline Limited (SNGPL), however, claims that nothing of this nature has happened and only the CPP connections have been halted. However, sources within the SNGPL have told Profit that while the official line is different, the cogen connections have also been affected by the gas shortage. The ensuing tete a tete has been public and bordering on the nasty, with the government claiming that the industry has been irresponsible with its use of energy and All Pakistan Textile Mills Association (APTMA) waging a battle to get the government to acknowledge that the gas supply has been affected beyond the CPP connections. 

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Why does the industry have three different connections? 

Any textile export setup will generally have three different kinds of gas connections. One for “process,” which means running their boilers, a second for their power plant, and another for what is called “cogen” which stands for co generation. Essentially, these industries need to produce steam either to produce electricity or to run their machines – most machines run on electricity. 

Gas is used to run boilers which then produce this steam. The first is the general industrial gas connection that all industries get, which is used directly to produce steam from gas. The second kind of connection is the previously mentioned CPPs. The CPPs are important because they provide gas for the in-house power generation plants of the industry. The textile sector needs gas to produce steam and run their boilers, but most of their machinery runs completely on electricity. Industry owners say they are not in a position to take electricity directly from the grill because of load shedding, constant fluctuation, and under capacity transmission lines. “Captive connections are already the most important to us and they were shut down. Through captive connections, our industry generates electricity only from gas,” says Kamran Arshad, vice chairman of APTMA. 

Because of this, textile manufacturers usually use their CPP gas connection to fuel their power plants which provide them with a steady, stable, stream of electricity. Relying on the WAPDA or LESCO connections does not work for them because every interruption or disturbance in supply causes the machines to shut down, only to be started all over again, which takes time and a toll on efficiency – which is already low in Pakistan’s textile sector and makes it less competitive internationally. 

In the winter months, this becomes a serious issue. According to SNGPL, the total demand for gas on normal days was 1600 mmcfd. In the winter months, with increased demand coming in from the domestic market as well, the demand went up to 1800 mmcf. The government suddenly had a significant shortfall of what it could provide, and decided to cut back on providing as to industries. In this regard, they were cutting off the CPP connection. However, APTMA has been up in arms because apparently the cogen connection has also been cut. 

“Through co-gen connection the electricity is generated from gas and then the fumes that are formed during this process are recovered and the steam is made and used in the process. Co-gen is technically the most efficient connection and has been closed with captive connections. The government says that it will not allow us to generate electricity from gas, however, the industry which produces direct steam from gas will be given priority,” says Arshad. 

In cogen, the mills use the gas to run a power plant, then use the heat exhaust from the power plant to operate their boilers. This has happened even though the SNGPL is supposed to disconnect all power plant connections only. Now, the SNGPL has maintained officially that they have only cut the CPP connections. However, sources high up in the SNGPL, on conditions of anonymity, have confirmed to Profit that cogen connections have indeed been cut as well. 

What exactly is going on? 

Over this issue, there has been a prickly back and forth between APTMA and the SNGPL. While the concerns of APTMA are valid since they were not informed about the cogen connections and there continues to be no official clarity over the issue,  the SNGPL has long been asking the textile industry to switch to electricity and come onto the grid. 

Speaking to the media, APTMA chairman Abdul Rahim Nasir has said that the operation of large units exclusively on electricity, according to industry, is difficult since the steam that is used in dying and other processes cannot be generated. “Only the new machines, and not the used ones, can be run effectively on electricity. But with captive power, all can be run efficiently leading to the generation of steam and production as per demand. We also cannot switch to electricity because it couldn’t work due to a 14-hour long power shutdown caused by tripping of the respective grid stations.” 

Speaking to Profit, Kamran Arshad, vice chairman of APTMA North Zone, said that the CPP connection was already a huge problem and now on top of that the co-generation connections had also been shut down. he said. “The decision was sudden and unilateral and the industry was not informed about it at all. We had been hearing rumors that the government was going to take a decision to cut off gas, but then we realised it had happened without us getting so much as a warning when our factories informed us that there was no gas.” 

The SNGPL has tried to rubbish the claims of APTMA and the textile industry. Amjad Ikram, an official in the media affairs department at Sui Northern Gas Pipelines Limited (SNGPL), tells Profit that it was in fact a misconception that gas supplies to industries had been suspended.

“SNGPL had cut off gas supply only to the captive power sector. Gas is being supplied to export and general industries as every industry has a general industry connection. Similarly, gas is also being supplied to commercial connections. The decision was taken under an approved load management program and WAPDA now has the capacity to provide electricity to industries at affordable rates,” he said. The official further informed that there were about 2300 industrial connections in Punjab and Khyber Pakhtunkhwa (KPK) out of which gas supply to only 400 captive power plants has been cut off.

“Now if you talk about commercial connections, the company [SNGPL] has provided 60,000 commercial connections in Punjab which are being supplied with gas. Through these commercial connections, many small industries are getting gas and running their business.” 

On the other hand, senior officials of the SNGPL have confirmed that cogen connections have also been halted. However, the official made it a point to say that industries should not cry over gas suspension to captive power plants as they have ample options for alternative energy sources. “If we talk about small industries like pottery or cutlery etc., they do not have general industrial connection but these industries are running their business through commercial gas connections,” they said. 

“The advantage to this is that gas closures on commercial gas connections are minimal. In winter, as the demand for gas consumption of domestic consumers increases, incidents like decrease in pressure occur somewhere but if you visit these industries secretly, these industries are using more illegal gas compressors than domestic consumers and our field staff is often involved in this activity.” 

The officials believed that the protest of the textile sector about the closure of gas in the captive sector was baseless and a traditional attempt to put pressure on the government. According to the SNGPL, both the official speaking anonymously and the official line, anytime a captive connection is provided to any company one part of the contract is that there will be a failsafe system of having electricity in case the gas supply falters, especially because of shortage in the winter months. “We can see why they are upset. SNGPL provides them with captive connections that result in uninterrupted and steady electricity to run their industry. Typically, if an industry uses 0.3 MMCFD gas, it is generating one megawatt of electricity and each industry produces electricity according to its own needs under the same method.” 

“However, any time an industry is given a captive connection, an undertaking is taken from the industry that they will build a dual fire arrangement system and the main reason for this undertaking is that as there is a shortage of gas in winter and the industry can use alternative energy sources from dual fire arrangement system and will not be shut down. Almost every captive connection has a dual fire arrangement system. Even if the industry uses electricity directly, its system can run. In fact, WAPDA is providing electricity to the industries at cheap rates. WAPDA is providing electricity to industries at RS 14 per unit while the cost of gas unit at captive connection is RS 20. The industry cannot be harmed if it runs its appliances on electricity instead of gas.” 

Why does the textile industry not have a backup? 

One of the biggest issues here is the fact that the textile industry has not been able to cope without the supply of gas. Most of the industry is in shutdown mode at the moment, and they are unwilling to operate on electricity. There are a few reasons for this. The first is that electricity is unreliable for an industry where there is a need to run machines constantly and without break. The other reason is that to setup an industrial electricity connection, the industrialist would have to buy land to set up a plant, which can end up being a Rs 100 million investment. 

However, at the same time, SNGPL has a point that a backup system is written into the agreement with the captive power connections. While the cogen issue still exists, the defence of the textile industry has been that the industry and SNGPL have a Gas Supply Agreement (GSA) that is being breached. “The agreement states that SNGPL will supply gas to us for eight to nine months in a year and is not bound to supply gas for three to four months as pressure drops in gas pipelines in winter but we have been getting gas in recent years and gas prices in our province are also higher than others,” says Kamran Arshad. 

“We cannot be expected to rely on grid electricity. When it comes to running the industry on electricity, it is very difficult in these situations because the cold has increased the fog and the moisture comes on the transmission lines which causes tripping and our machines, which are running at very high speeds, suddenly shut down. It takes one to two hours to restart these machines,” he said. 

“The second issue is load shedding. As soon as our gas connections were cut off, the industry suddenly started using electricity and the power supply companies were not prepared for this sudden increase in load. As a result, areas like Bhai Pheru, Sheikhupura, Okara, Manga Mandi and Phool Nagar were without electricity for 14 to 15 hours and the industry was shut down. The gas shutdown affected not only the textile sector but also every small and big industry.”

SNGPL insists that everything is above board, and that the disconnections are within the bounds of the GSA. According to them, the industry has two excuses – the first is that electricity is not reliable and the second is that they were not informed and this happened unilaterally and they had no fair warning to get their affairs in order. “As far as the first complaint is concerned, the industry also has a third option to generate electricity through furnace oil or diesel and the cry of gas closure is only because if there is load shedding or fluctuation then the third option has to be used.” 

Some haze also surrounds the second concern of not being informed on time. APTMA officials claimed that they suddenly came to know about the decision to cut off gas while the preparation of the association shows that the industry was already aware of all the issues.

According to the SNGPL official, the decision was taken at 5:30 pm on December 15 to shut off gas from captive connections and the announcement was made at 7 pm on the same day. On the other hand, senior officials of APTMA including the Chairman of APTMA Pakistan and the Chairman of North Zone were meeting with the Advisor for Commerce, Textile, Industry and Production, and Investment of Pakistan to Prime Minister Abdul Razak Dawood at 5:30 pm on the same day.

“Do you really think they did not know about this decision? We can’t even question the textile sector because they are big capitalists and have direct contact with important government figures. This sector also gives expensive gifts to the government officials and if there is any problem in their gas connection or we ask them counter questions then they also arrange our transfers,” explained another high ranking official of the SNGPL on condition of anonymity. “The decision to stop gas on captive connections was not ours but the government’s. We had to shut off gas from the Consumer Meter Station (CMS) of all captive connections through our field staff in 24 hours.” 

Meanwhile, when APTMA officials were confronted with the meeting and the SNGPL’s accusations that they were not unaware and had meeting with Razzaq the day that it was announced, the Vice Chairman claimed that it was not discussed and before going into the meeting his sources had told him that the government had already made the decision. It is pertinent to mention here that it was informed in the press release of SNGPL that gas will be cut off on captive connections from 9:30 pm on December 15, while the Vice Chairman claimed that gas cut off was done before 5:30 pm on the same day.

All in all, this issue is one that does not look like it will have a conclusion anytime soon. As the gas supply remains suspended for the textile industry in the midst of a gas shortage in the country, there is a dire need for two things. The first is for the SNGPL to be more upfront, especially about the cutting of the co-generation connections which they are still officially stating have not been cut. The second thing is for the textile industry to do some serious introspection and realise that since this might be a persistent problem in the future, they must figure out other ways to keep their furnaces and boilers burning. If they do not, it will be their loss, and all the complaining and whining in the world will not stop if there is just not enough gas being supplied. 



After PRL, three more refiners warn of closure as furnace oil stocks reach full capacity

Industry insiders blame disconnect between power and petroleum divisions for the crisis sweeping their sector.  

Less than 24 hours after the announcement by Pakistan Refinery Limited (PRL) that they were temporarily shutting down production owing to operational constraints, the CEO of Attock Refinery Limited (ARL) met with the Secretary Power to warn him that he might have to follow suit and shut down operations as his storage capacity was filled to the brim with furnace oil. Sources tell Profit that National Refinery and Byco have issued similar warnings but confirmation was not available till the filing of this report.

Attock is the second major refinery out of four to make it known that the capacity issue has now reached a stage for them to halt operations. Others are expected to follow suit. Profit has learned that Attock’s CEO, Adil Khattak, met Secretary Power, who has the additional charge of the petroleum division, specifically to inform him of Attock’s impending closure. 

The issue has been caused because refineries in Pakistan have high stocks of furnace oil. The stocks have grown because of the refusal of Independent Power Producers (IPPs) to lift the furnace oil, which has caused the refineries to accrue a build up. Fearing that they would be forced to shut down because of this, refineries have been asking the petroleum division to take measures for lifting the furnace oil to “safeguard the country’s strategic assets.” 

With no response from the government on this front, they lamented that all power plants’ storage is currently under utilised, which is severely affecting all local refineries, which are heading towards a forced shutdown that will impact motor spirit (MS), high speed diesel (HSD) and jet fuel availability. 

Adil Khattak, Chief Executive Officer (CEO) of ARL, told Profit that in his meeting with Secretary Power, he had been reassured that the problem would be resolved very soon. However, as he also pointed out in the meeting, Attock could be forced to shut down any day and there seems to be no progress in terms of lifting the furnace oil. “We have already started closing down its operation mainly because the refinery has left with furnace oil storage capacity of only four to five days,” he said. “ARL has repeatedly requested the petroleum division to intervene and resolve the storage constraints of the refinery. However, no mentionable action has been taken in this regard.”

He also said that the ARL on Thursday closed operation of one small unit with capacity to refine 5,000 barrels per day (BPD) and if the situation does not improve in the near future then ARL will have to suspend its operation from its second unit with capacity to refine 10,000 BPD until the situation improves. 

In addition to oil, ARL has been producing 485Million Cubic Feet per Day (MMCFD) of liquefied petroleum gas along with petroleum products. Meanwhile, sources in the petroleum division also told Profit that National Refinery Limited (NRL) has also communicated the storage constraints and hinted to shut down its operation. However, no confirmation from the NRL was available in this regard at the end of this week. 

A senior official of Byco has also said that they have obtained a rented storage at Port Qasim and called tender for the sale of 37,000 tonnes  and so far it has transported 30,000 tonnes of the FO to the rented storage. At present, Byco Refinery’s storage capacity is full, and is faced with ullage constraints. On Friday, a senior official of PARCO informed that the PARCO has taken precautionary measures to deal with likely storage constraints and planned to export 50,000 tonnes. PARCO has obtained storage at the Port Port Qasim. So far, 40,000 tonnes of FO has been transported to the rented storage while remaining 10,000 tonnes of FO will be transported in the next two to three days while PARCO has called tender for sale of FO.

The issue has been brewing for a while. In a letter written to the Director General (Oil) of the petroleum division, the  Oil Company Advisory Council (OCAC) had requested that the government ensure the lifting of furnace oil from refineries. Pakistan State Oil (PSO) also wrote a similar letter to the DG, in which the state owned company pointed out that IPPs have not been lifting significantly since as far back as July, meaning the accumulation of inventory is pretty serious at this point. 

“You are requested to kindly take up the matter with MoE (Power Division) to advise power plants to lift the product for stock build up as the current stock with these IPPs especially HUBCO, TPS Muzaffargarh and TPS Jamshoro are negligible whereas these power plants should maintain at least 21-30 days’ stock in order to avoid any untoward situation,” the letter said.

Sources in the oil industry have said that allowing the Oil Marketing Companies (OMCs) to import furnace oil during July-November 2021 is one of the major reasons behind the IPPs reluctance to lift FO stocks from local refiners, leading to over accumulation of inventory and ullage constraints. The feeling in the industry is that PSO has imported refined oil in large quantities and remained unwilling to supply the fuel to IPPs which are faced with financial constraints. IPPs of 2002 Power Policy are also faced with financial problems as their dues are so far not cleared by the government due to which they are unable to lift the furnace oil, said sources.    

When contacted, a PSO official said that the company has only one HSFO cargo at the outer anchorage, and the same will be berthed in the coming week. “PSO imports FO based on demand provided by the power division,” said the official. 

The sources also said that refineries are shutting down their operations largely due to lack of coordination between the power and the petroleum divisions. They added that despite repeated efforts by the local refineries, OCAC, Petroleum Division’s DG (Oil), the power division has paid no due heed to the ullage constraints of refineries and resultantly refineries have started shutting down their operations unfortunately.

The OCAC has also stated that for ensuring availability of all the other petroleum products, refineries’ smooth operations is key, therefore, the DG Oil must approach the Power Division for immediate placement of orders by IPPs on OMCs. The OCAC also highlighted that OMCs are to consume finished products produced by refineries before importing any new stock and that only deficit volumes can be imported.

“On the firm demand of the Power Division, OMCs were allowed to import LSFO/HSFO during July-November 2021. But non-uplifting of the committed quantities by the power producers has resulted in a stock build up. Therefore, before finalising any new import, locally produced furnace oil may be accounted for. This will result in decreasing the ever building stocks of fuel oil at refineries and improve the availability of other petroleum products,” the letter concluded.

The OCAC also stated that local oil refineries are the backbone of the country’s energy security, supplying over 11 Million Metric Tonnes (MMT) of various petroleum products but due to non-uplifting of fuel oil and limited storage, they are forced to reduce and in some cases, almost shut down crude processing which will affect the availability of the petroleum products, eventually disturbing an already fragile supply chain.

The OCAC pointed out that the government, during this year, has so far made substantial payments to IPPs that are bound to keep mandatory stocks as required according to Fuel Supply Agreements (FSAs) with OMCs.

The Directorate General (Oil) of Petroleum Division, in a letter dated 9th December 2021, has requested the power division to direct the power plants to uplift furnace oil (FO) through PSO/ OMCs immediately for stock buildup and provide payments/ LCs to PSO.

Despite repeated attempts, Secretary Power was not available for comments.

Shahab Omer
The writer is a member of the staff and can be reached on [email protected]


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