Govt Proposes New Gas Levy

Sui Northern Gas Pipelines Limited (SNGPL) continues to ration natural gas without prior notice, even during the summer months, as internal disputes over pipeline capacity allocation to private suppliers escalate. Meanwhile, the government is preparing to impose a new gas levy on the power sector to create a “level playing field” for public and private gas suppliers. This comes at a time when Pakistan is grappling with a severe natural gas and LNG oversupply crisis. The government has already postponed over 170 LNG import shipments, while SNGPL has forced local gas producers to shut down or reduce production, reported Dawn. This has led to significant financial losses for local producers, including state-owned Oil and Gas Development Company Limited (OGDCL), which is listed on the London Stock Exchange. The situation is also draining the country’s foreign exchange reserves and leaving consumers with high gas bills for limited supply. SNGPL has instructed local gas fields, which produce cheaper gas, to scale back production to accommodate expensive LNG purchased under binding international contracts. As a result, over 300 million cubic feet per day (mmcfd) of local gas production has been curtailed. This has created cash flow problems for local producers like OGDCL, GHPL, and private companies, affecting their ability to explore and produce gas both domestically and internationally. OGDCL, the country’s largest gas producer, has publicly criticized the situation. In a report to its board, the company revealed that reduced gas intake by SNGPL from key fields like Qadirpur, Nashpa, and Chanda has slashed daily production by 1,148 barrels of crude oil, 76 mmcfd of gas, and 55 tons of LPG. The company’s sales revenue dropped to Rs. 310.9 billion in the first nine months of the fiscal year, compared to Rs. 348.1 billion in the same period last year. While local producers are forced to cut supply, SNGPL has begun rationing gas for residential and commercial customers, providing it for only 2-3 hours during meal times. Adding to the burden, the government doubled fixed monthly charges starting July 1, 2025. This means a household consuming Rs450 worth of gas now faces a total bill of nearly Rs. 2,500 after taxes and fixed charges. To ease the financial strain on local producers, the government allowed them to sell some of their gas directly to private buyers. Companies like MOL-Pakistan and Petroleum Exploration Limited have already started selling gas from fields like Razgir and Zahra North to third parties. However, SNGPL has resisted these arrangements, claiming they distort the market. For instance, SNGPL opposed the sale of gas from the Razgir field to a private buyer, arguing that the Rs791 per unit captive levy imposed on its industrial customers under IMF conditions does not apply to private suppliers. This has led many industrial customers to switch to cheaper private gas, further straining SNGPL’s finances. Despite SNGPL’s resistance, its board of directors approved the pipeline capacity allocation for Razgir gas to a private buyer. However, SNGPL management later denied this approval, even though records show nine out of 11 board members signed off on the decision. To address the ongoing conflict, the Ministry of Law has ruled that the captive power levy applies to all consumers of LNG or local gas, regardless of whether it is supplied by public or private entities. The ministry clarified that while the sale of gas from producers to suppliers is deregulated, the sale from suppliers to captive power plants (CPPs) is not. The Oil and Gas Regulatory Authority (Ogra) will now determine the price for such sales under the Levy Act of 2025. With the energy sector’s circular debt exceeding Rs. 4.6 trillion, the government faces mounting pressure to resolve the gas crisis. However, the infighting between SNGPL, local producers, and private suppliers, coupled with rising costs for consumers, highlights the deep-rooted challenges in Pakistan’s energy sector.