The Oil and Gas Regulatory Authority (OGRA) announced an upward revision in the prices of Regasified Liquefied Natural Gas (RLNG) as system losses touched a record high of 16.16 percent. According to Dawn, the price hike is only for areas that Sui Southern Gas Company (SSGCL) serves – Sindh and Balochistan.

 

The sale price of SSGCL has risen by almost half a percent per unit to $10.59. While this may seem minor at first glance, one must consider the volume of consumption. The magnitude of Pakistan’s volume of gas consumption can be analyzed once data from the International Energy Agency (IEA) is considered.

 

As per the IEA, Pakistan produced 854,568 tera joules of natural gas. However, this was still not enough for domestic consumption as gas imports skyrocketed by 1527 percent from 2014-2022. The tragedy here is that experts are predicting that the increase on RLNG prices will not even significantly benefit SSGCL as system losses continue to worsen.

 

System losses stood at 13 percent a couple of months ago but grew to over 16 percent in the last month prompting an increase in price for the upcoming months. Analysts predict that the SSGCL might not benefit significantly despite the price increase however, the rest of the economy is projected to fare even worse.

 

Natural gas is used in residential areas for the purpose of heating and cooking. The industrial sector in Pakistan also heavily relies on natural gas for the production of key chemicals that are used to produce fertilizers and manufacture plastics.

 

According to data from the IEA, Pakistan’s residences share in 36 percent of total final consumption whereas this number stands even higher at 37 percent for industries.  The effect of an increase in RLNG prices will serve to erode the purchasing power of an average citizen. This is because natural gas is an essential utility that is categorized as a necessity by most analysts.

 

Higher costs of RLNG will translate into consumers having fewer funds available to allocate to other items in their basket of goods. For businesses, this spells bad news as they will remain unable to capture the same level of consumer spending as before.

 

The gas price hike spells bad news for industrialists too as gas is used extensively in the fertilizer and plastic manufacturing sectors. Fertilizer companies have industrial bases in Sindh where gas prices have risen. A prime example can be Fauji Fertilizer’s plant in Mirpur Mathelo, Distt. Ghotki Sindh. This will hurt fertilizer companies such as Fauji Fert, Engro Fertertilizers and Fatima Fert.

 

Pakistan is a net importer of fertilizers and the increase in prices could cause a loss in the competitiveness of locally produced fertilizers. The agricultural sector could consider substituting away from local fertilizers in favor of cheaper imported fertilizer.

 

Moreover, the plastic manufacturing sector will get hurt as well. As per Zaraye, there are 11000 units of plastic manufactures that could struggle once gas prices rise. Many are speculating that the ones hit hardest will be the small to medium sized plants operating in either Sindh or Balochistan.