The government of Pakistan has decided to introduce a blended gas pricing model by eliminating the separate Liquefied Natural Gas (LNG) pricing structure, merging it with the rates for wellhead and pipeline-quality natural gas. The move aims to lower electricity costs and create equitable pricing for all consumer categories.
Minister for Petroleum, Dr. Musadik Malik, disclosed this during a media briefing. He confirmed that the government was also close to finalising an investment decision for the Reko Diq project and was evaluating the establishment of a greenfield refinery worth over $10 billion for petroleum and petrochemical production, on a 50:50 basis.
When asked about the ongoing high-speed diesel (HSD) crisis, which has brought local refineries to the brink of closure, Dr. Malik expressed surprise, stating he was unaware of the issue. Reports suggest that Pakistan State Oil (PSO) had to cancel its import orders due to special import permissions granted to a specific market player, leading to foreign exchange losses. Dr. Malik promised to investigate and provide updates soon.
The oil industry, including refineries and Oil Marketing Companies (OMCs), has been protesting for months against the Oil and Gas Regulatory Authority (OGRA)’s decision to permit one particular company to import excessive HSD stocks, resulting in large unsold inventories at local refineries.
Dr. Malik explained that challenges in LNG import rules and the ring-fenced pricing for LNG-based power plants had led to inefficiencies. LNG power projects, which produce electricity at a significantly higher cost (Rs20-24 per unit) compared to natural gas (Rs8-10 per unit), have been largely inactive due to this issue. The proposed blended pricing model would lower the electricity cost to about Rs14-15 per unit, offering substantial relief.
According to the minister, wellhead gas costs around Rs570-580 per unit, while pipeline-quality gas is priced at about Rs1600 per unit, and LNG at approximately Rs3500 per unit. The blended price of these sources would average between Rs1700-1800 per unit, making it possible to offer subsidised rates to low-income households.
The plan, which is expected to be finalised in the coming months, will aim to ensure fairness across all sectors of the economy. Despite concerns, Dr. Malik ruled out any gas price hikes and confirmed that LNG imports, currently at 1000 million cubic feet per day (mmcfd), would be sufficient to meet winter demand.
Regarding the Iran-Pakistan gas pipeline, Dr. Malik refrained from commenting on possible international arbitration over Pakistan’s failure to develop the infrastructure needed to receive Iranian gas. He also dismissed rumours of potential penalties amounting to $18 billion.
The minister revealed that the government is exploring investments from Saudi Arabia, China, and other countries for the greenfield refinery project. Additionally, feasibility studies are underway to assess the shift from petroleum products to electrification, including electric vehicles.
Dr. Malik confirmed that a report has been commissioned to determine whether the proposed greenfield refinery should focus on crude-to-petroleum, crude-to-petrochemical, or a 50:50 combination. Once the findings are submitted, work on the refinery project will be accelerated.
Lastly, the minister indicated that the government is exploring solar energy solutions, particularly grid and rooftop projects, and is working on proposals to transition space and water heating from natural gas to electricity.