Pakistan Textile Council

LOCKED OUT AND SHUT IN: HOW POLICY GAPS ARE UNDERMINING GAS MARKET REFORM

Blog

Writer:  MR. ASIM RIAZ AN ESTABLISHED ENERGY EXPERT, M.PHIL. STRATEGIC STUDIES NDU,MASTERS IN ENERGY MANAGEMENT CIIT, B.SC. (MECHANICAL) UET, BS. MATH-PHYSICS PU.

The absence of integrated energy planning has led to deepening structural inefficiencies across Pakistan’s energy value chain. Policy and regulatory decisions in the gas and power sectors are being made in silos—without alignment on fuel procurement, demand projections, or system-wide optimization.
A prominent example is the abrupt transition of captive power demand to the grid, implemented without corresponding adjustments in gas contracting or dispatch planning. This misalignment has resulted in persistent RLNG surpluses, declining utilization of indigenous gas, and the costly diversion of surplus volumes to non-cost-reflective segments, primarily residential consumers.
The financial repercussions are significant, with mounting liabilities cascading across the gas supply chain and severely impacting the liquidity position of both distribution companies and upstream E&P entities. These issues are compounded by rigid take-or-pay contracts, overcapacity in thermal generation, and fragmented demand forecasting.
The gas sector is being forced to absorb inefficiencies created by underutilized power capacity, while the power sector passes through fuel-related costs resulting from poor planning. This disconnect distorts price signals, undermines tariff recovery, and jeopardizes sector-wide financial sustainability. If left unaddressed, it may precipitate a broader credit event across Pakistan’s public and private energy institutions. The current pricing framework for captive power plants is economically irrational, environmentally counterproductive, and strategically short-sighted. Industrial zones continue to face quality-of-supply issues, including voltage instability, unplanned outages, and limited interconnection capacity.
The grid, in its current form, lacks the capability to reliably absorb the industrial load displaced by captive systems. As a result, high-paying industrial gas consumers are being replaced by subsidized residential users, exacerbating the circular debt crisis and inflating fiscal risk. While intended to protect the grid from a utility death spiral, this reactive approach is ultimately accelerating the sector’s financial and operational collapse.
It is reiterated that Captive industrial gas/LNG demand has fallen by an estimated 225 MMCFD, contributing to an RLNG surplus of 450 MMCFD—nearly half of Pakistan’s annual LNG imports. This demand destruction has sparked a cascading crisis: surplus LNG is being diverted at a cost of PKR 300 billion annually, while gas circular debt has surged by PKR 500 billion within the first seven months of FY2025.
Domestic gas production is increasingly shut in, creating supply insecurity, while rising linepack pressure introduces serious operational risks. Meanwhile, E&P companies face a severe liquidity crunch, with receivables effectively converted into stranded debt, stalling future exploration and development.
Despite formal adoption of Third Party Access (TPA) under the Gas Network Code and OGRA’s TPA Rules, effective implementation remains constrained by structural and procedural barriers. Chief among them is the narrow eligibility criterion limiting access to only Industrial Sale Dominant Sales Meter Stations (SMSs).

As stated in the Network Code, “Only supply mains of industrial SMSs (i.e., SMSs with dominant Industrial Sale) will be considered for transportation service in the distribution network.” This provision effectively restricts access to a limited share of the SNGPL and SSGC distribution grids, undercutting the core intent of competitive gas market liberalization. Available field data indicates that only 15–20% of the distribution network qualifies under current TPA provisions. The remaining access requests are evaluated through non-transparent, discretionary procedures—heavily influenced by loosely defined parameters such as system integrity, seasonal balancing, and operational constraints. These criteria lack codified standards, inviting regulatory ambiguity and procedural opacity.

The policy decision to remove captive power from the gas supply pool has further shrunk the addressable market for third-party suppliers. The captive sector had historically served as the most bankable and reliable offtaker for RLNG under TPA. Its exclusion has rendered many transactions commercially unviable, undermining confidence in the TPA regime and discouraging future private participation.

In its current form, the TPA framework effectively preserves a de facto monopoly, where Sui gas companies maintain dominant control over both network access and customer allocation. This contradicts the stated goal of transitioning to an open, transparent, and competitive gas market. Without meaningful reforms to unlock fair and non-discriminatory access to all viable segments—including commercial and residential categories—Pakistan’s gas market liberalization will remain aspirational rather than operational.