SNGP cites RLNG oversupply, anticipated gradual shift of captive power consumers to the national grid behind gas suspension
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Due to an oversupply of re-gasified liquefied natural gas (RLNG) and the expected gradual shift of captive electricity purchasers to the countrywide grid, Sui Northern Gas Pipelines Limited (SNGP) has projected a suspension of 354 mmcfd of herbal fuel purchases from local exploration and manufacturing (E&P) agencies. Previously evaluated using SNGP, the projected gas suspension for the imminent monetary year became 86 mmcfd. Any suspension of natural gas from domestic E&P businesses might additionally impact crude oil output, given the parallel manufacturing from associated gas fields. Because mining and quarrying—which includes coal, oil, and gasoline—represent nine 0 percentage of the commercial region, a giant decrease in production of oil and fuel would hurt GDP growth as a whole. In addition, the profitability of E&P organizations would be adversely impacted, in keeping with a research notice via Topline Securities.
To address a projected sales shortfall of Rs207 billion, SNGP has proposed a 40-forty two in keeping with cent increase in gas tariffs from July 2025. This shortfall is typically a result of expected revenue losses due to the diversion of gas components from captive power gadgets to domestic clients because of the system’s excess RLNG. An overdue fee surcharge (LPS) of Rs96 billion is likewise included in this variety.
Compared to the 164 mmcfd permitted with the aid of the Oil and Gas Regulatory Authority (Ogra) for FY25 in its review of the Estimated Revenue Requirement (RERR), SNGP anticipates that the diversion of RLNG to domestic purchasers will reach 242 mmcfd for FY26. The extra 78 mmcfd of RLNG diverted to domestic customers is anticipated to bring about an incremental shortfall of Rs70 billion, as the average tariff of Rs1,000/mmbtu for residential purchasers is drastically decrease than the Rs3,500/mmbtu charge charged to captive power plants.
As is commonplace, the enterprise has covered Rs96 billion in its estimate for FY26 in light of the LPS. However, analysts assume that the regulator will reject this issue all over again because Ogra generally rejects it. Excluding the LPS, the specified price increase might reduce to around 19-20 consistent with cent from the proposed forty-forty two in step with cents. Even so, it’s far expected that Ogra will not approve the full growth and could revise it downwards.
SNGP’s projected weighted common fee of capital (WACC) on working constant assets is now 23.39 percent due to the latest decline in the fee of debt (Kibor). The corporation has proposed Rs124 billion in common fixed assets for FY26, a internet increase of Rs15 billion from the Rs109 billion permitted by way of Ogra in FY25’s RERR. Topline Securities claims that the government’s long-term goal beneath the IMF application is to lessen the use of captive power and boost reliance on the countrywide grid. Although the authorities first of all made a promise to the
International Monetary Fund to shut off gasoline components to captive gadgets by the cease of January 2025, it later followed an exceptional method: raising price lists to inspire consumers to use the grid. In mid-March 2025, a grid levy of Rs791/mmbtu was imposed on top of the prevailing Rs3,500/mmbtu fee.
However, several businesses have acquired live orders in opposition to the grid levy from the higher courts. According to industry assets, captive gas price lists and taxes will continue to rise until captive energy technology fees healthy the national grid’s tariff. The government intends to negotiate with Qatar in the future for either a lower range of RLNG cargoes or a decrease in prices. There is a price review clause after ten years in the contemporary 15-year delivery settlement, which was signed in February 2016. Should both parties fail to attain a consensus on pricing, the settlement’s tenure would robotically shorten to 11 years, Topline Securities cited.