Background
The Oil and Gas Regulatory Authority (OGRA) of Pakistan, through its Gas (Third Party Access) Rules, 2018 (TPA Rules, 2018) and the Pakistan Gas Network Code (Code), has established a regulatory framework for third-party access to the gas pipeline network. This framework includes provisions for determining a “Neutral Market Price” to facilitate energy balancing and monthly reconciliation cash-out charges.
Key Definitions and Concepts
Neutral Market Price: This refers to a neutral wholesale market price used for energy balancing and monthly reconciliation cash-out charges. According to the Code:
- Annually, the transporter must prepare a neutral market price statement detailing one or more neutral market prices for calculations under the network code.
- The price can be a specific figure in Rupees or an algorithm that allows quick and easy determination of the prevailing neutral price.
Reconciliation of Gas: This involves the monthly reconciliation of natural gas in energy terms, accounting for gas received at the entry point, system used gas (SUG), transmission loss (TL), line pack (LP), delivery at exit points, and any excess or undelivered gas.
Shippers Cumulative Imbalance Quantity: This is the sum of the shipper’s imbalance quantity over all days in the current calendar month, adjusted for any previous reconciliations.
Capacity Overrun: Occurs when a shipper flows gas in excess of its contracted capacity at the entry or exit point on a given day.
Daily Discipline: Procedures laid out in Article 3.7 of the Pakistan Gas Network Code for handling positive and negative imbalances.
Methodology for Determining Neutral Market Price
The transporter is responsible for preparing and reviewing a technical methodology for determining neutral market prices, subject to the approval of the Authority. The methodology should consider various factors, including national or international indices of fuels such as natural gas, LNG, or fuel oils.
Responsibilities of Transporters (SNGPL & SSGCL)
Transporters like Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL) are responsible for:
- Preparing and submitting the technical methodology for neutral market prices.
- Ensuring that the methodology accounts for expected gas deliveries to the transportation system and relevant indices.
Perspectives and Justifications
SNGPL’s Perspective:
- For positive imbalances (excess input by the shipper and less offtake by the shipper’s consumers), the neutral market price should be the latest weighted average indigenous gas purchase price.
- For negative imbalances (less input by the shipper and more offtake by the shipper’s consumers), the neutral market price should be the latest RLNG price determined by OGRA.
Consultative Session and Stakeholder Input
A consultative session held on June 14, 2023, at OGRA’s Head Office included extensive discussions and written submissions from various stakeholders such as:
- SNGPL
- SSGCL
- Pakistan LNG Limited
- Energas (Pvt) Limited
- Tabeer Energy (Pvt) Limited
- Shell Energy Pakistan Company
- Universal Gas Distribution Limited
- Trafigura Pakistan (Pvt) Ltd
- Pak Arab Fertilizer Ltd
- K-Electric Ltd
Stakeholders emphasized the need for a fair and equitable neutral market price that does not unduly benefit any party. They also raised concerns about the disparity between indigenous gas prices and RLNG prices, and the impact on shippers’ financial models.
Decision of the Authority
After considering all submissions and discussions, OGRA decided:
- Monthly Reconciliation: Imbalance charges should be settled equitably, ensuring that neither shippers nor transporters derive undue benefits or suffer losses.
- Neutral Market Price: The RLNG provisional price determined by OGRA for the relevant transporter shall be set as the Neutral Market Price for volume imbalances.
- Threshold for Imbalance Charges: Imbalance charges will be applied to cumulative imbalance quantities exceeding 10% of the shipper’s booked capacity in summer and 5% in winter.
- Implementation and Review: The existing framework has been developed after extensive consultation, and any further amendments will be considered after practically testing the current scheme of law.
The Authority’s decision aims to ensure fairness, balance the interests of stakeholders, and foster the development of the natural gas sector in Pakistan. The issue of neutral market price under Section 3.10 of the Gas Network Code has been resolved accordingly.
