The new gas connections, announced by the federal government yesterday, will be significantly expensive than existing subsidized gas rates but offer a cheaper alternative to liquefied petroleum gas (LPG).
In a report, Brokerage House Topline Securities said that these new connections will be provided at RLNG rate, which is around $12- 13 per mmbtu, or Rs. 3,300-3,700 per mmbtu.
These new connections would be significantly expensive than existing subsidized gas rates of Rs. 200-1,250 per mmbtu (consumption between 0.25-1.0 hm3), however, 35-40 percent cheaper than current LPG rates of $20-21 per mmbtu.
Currently LPG in market is available at Rs. 277 per kg, which translates into per mmbtu price of $6,000.
Presently, new housing societies in country have no natural gas connections due to ban and are consuming LPG as an alternate, the report noted.
The brokerage house said it expect that the government will eventually move away from blanket subsidy model as 70% of residential household fall in subsidized slab as per International Monetary Fund (IMF) report, and the cost of this cross subsidy is borne by industry.
“These high price new gas connections will eventually converge to uniform gas pricing as government has already committed to IMF for adapting a new targeted and budgeted gas subsidy framework, eliminating the current cross-subsidy system,” it added.
Moreover, Topline said that the lifting of ban on gas connections will bode well for E&P companies as alone SNGP has curtailed over 300 mmcfd of gas from domestic gas exploration companies namely PPL, OGDC, MARI, and POL This along with any probable diversion of cargoes from Qatar in 2026 will help E&Ps in lifting their production volumes. Similarly, this will also help in improvement of cash flows of Sui companies namely SNGP and SSGC.
According to Topline’s analysis, currently SNGP and SSGC both cumulatively have 10.5mn domestic connections with supply of 768mmcfd, translating into average 7.5mmcfd to 100,000 consumers.
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With news reports suggesting pending gas connection request of 3.2 million (for SNGP) and assuming 3.5 million country wide gas connection requests, this has potential to consume additional 250mmcfd of gas (equivalent to 2.5 cargoes additional). As a result, an equal amount of gas production by E&Ps can be increased.
