By Abdullah Azeez Zia
Natural gas consumption in Pakistan is more a function of supply than demand. Whenever new gas discoveries are made and added to the system, the gas distribution Companies have found ready buyers. With the increased E&P activity in the country, along with the increased production from the existing gas fields, gas consumption is likely to grow considerably primarily on demand from the power sector.
Pakistan’s dependence on gas is significantly higher with gas accounting for almost 43% of total energy supplies. The country has been relying on oil and gas for majority of its energy needs, with both constituting almost 80% of the total energy supplies in the country. While indigenous gas supply is sufficient to cater to domestic demand, it has been meeting the majority of its oil requirements through imports.
While it is generally expected that Pakistan’s gas reserves of 26.1 TCF of gas will last for 20-25 years, this is based on the current annual consumption rate of almost 1TCF. With the increased consumption by the power sector being eyed, Pakistan is likely to face a shortfall in gas supply much earlier than that. According to a study, if gas demand grows moderately, along with moderate additions to supply, Pakistan could face a shortage of gas of 439mmcfd by 2010.
Pakistan’s natural gas industry is in a growth stage. Driven by the government’s desire to increase dependence on indigenous fuel, both the gas distribution companies are spending aggressively on increasing their infrastructure. The gas utilities have announced capex plan amounting to a total of PkR64bn (US$1.1bn) over the next five years. This is a massive investment considering that both these utilities have spent only PkR23bn (US$341mn) over the last five years. Pakistan’s gas demand remains unmet despite growing at a 5-year CAGR of 7%. The power sector, which accounts for almost 40% of total gas consumption, is wanting for gas to convert its fuel based thermal stations. While all major cities of the country are hooked up to the gas network, domestic consumers in the northern parts of the country are still relying on LPG and kerosene to meet their energy needs.
Pakistan has two integrated gas transmission and distribution companies, which buy gas from the E&P companies, and then sell it to retailers. The two gas utilities have distinct franchise areas, with Sui Southern Gas Company Limited supplying gas to consumers in the Balochistan and Sindh provinces of Pakistan, while Sui Northern Gas Pipeline Company Limited supplies gas to the provinces of Punjab and NWFP. The pipeline network for transmission and distribution of gas is owned by the two gas utilities in their specific franchise areas.
Both SUI Southern Gas Pipelines (SSGC) and SUI Northern Gas Pipelines (SNGPL) are working under a fixed return formula. According to the formula, profitability of the companies at the EBIT level is linked to their respective net operating assets. In the case of SSGC, their EBIT is guaranteed at 17% of their average net operating assets, while for SNGPL, EBIT is guaranteed at 17.5% of average operating assets. Thus, the more these companies invest in infrastructure and development, the higher their earnings are likely to be.
Sui Northern Gas Pipelines Limited (SNGPL) is the largest integrated gas company serving more than 2.5 million consumers in North Central Pakistan through an extensive network in Punjab and NWFP. The Company has over 42 years of experience in operation and maintenance of high-pressure gas transmission and distribution systems. It has also expanded its activities to undertake the planning, designing and construction of pipelines, both for itself and other organizations. SNGPL operates in a region of the nation that has a rapidly growing demand for natural gas and power generation due to significant industrial development.
SNGPL transmission system extends from Sui in Balochistan to Peshawar in North West Frontier Province (NWFP) comprising over 6121 KM of Transmission System (Main lines & Loop lines). The distribution activities covering 142 main towns along with adjoining villages in Punjab & NWFP are organized through 8 regional offices. Distribution system consists of 32,146 KM of pipeline and 42,622 KM of service lines (as at August 2005).
SNGPL has 2,536,700 consumers comprising Commercial, Domestic, General Industry, Fertilizer, Power & Cement Sectors. Sales to these consumers were 13,616,765 HM3 worth 8,960.79 million rupees during August 2005. Annual gas sale for year 2004-2005 was 151,317,856 HM3 worth 84,710.40 million rupees with Company’s earning per share at Rs. 5.52/-.
Inter-State Gas Systems (Pvt.) Limited (ISGSL), a company engaged in the import of gas projects in Pakistan, and TransAsia Gas LLC, a company registered in United Arab Emirates established by Al-Ghurair Investments of Dubai, UAE, signed a heads of agreement - Memorandum of Understanding (MoU) at the Ministry of Petroleum and Natural Resources. The document envisages intention of both the companies to form a Joint Venture Company which will look into the possibility of investment in petroleum sector in general and pipeline infrastructure development for import of gas into Pakistan from any of its neighboring countries.
ISGSL has already prepared a study on supply and demand of natural gas for the next 20 years on Pakistan basis. The study reflects that there will be a shortfall between supply and demand of natural gas starting from year 2009 @ 200 MMCFD and this gap will further increase steadily to 1500 MMCFD gas by year 2015. Therefore, import of gas into Pakistan is imperative and the said gas import project is scheduled to be completed by the year 2009.
DEVELOPMENT and FUTURE PROJECTS
The construction works on Rewat - Murree line, Cement Plants in Chakwal and Dera Ghazi Khan areas, are in progress.
In the near future Company plans to construct 300 Kms, 12" & 8" dia transmission lines to supply gas to Southern District of NWFP including Hangu, Karak, Lucky Marwat, Bannu, D.I. Khan, Tank and 115 Kms, 8" dia, transmission lines for gas supply to Southern Districts of Punjab.
FUNDAMENTALS
The financial statement for the year ended June 30, 2005 shows an improvement in the financial health of the Company. The total gas sales for the year was 151,317,856 hundred cubic meters showing a volumetric increase of 18.74% over the previous year. The major users were the Power sector, Domestic & Commercial Users and the General Industries.
The earning per share was Rs.5.52 compared to Rs.4.60 the previous year.
The First Quarter Accounts for the period ended September 30, 2005 show an improvement in comparison to the corresponding period last year. Gas sales, Gas sales net of GDS, Profit before and after tax and earnings per share all sowed an increase. The Earning per share was Rs. 1.69 for the 1st quarter compared Rs. 1.42 for the same period in 2004.
TECHNICALS
SUI NORTHERN GAS closed down at Rs. 69.75. Volume was 35% below average (neutral) and Bollinger Bands were 53% narrower than normal.
Short-term traders should pay closer attention to intraday levels while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the chart, currently becoming bearish.
The share is currently 11.7% above its 200-period moving average and is in a downward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect moderate flows of volume into SNGPL (mildly bullish). Our trend forecasting oscillators are currently bearish on the Company and have had this outlook for the last 7 periods.
For comments and suggestions:
Email: abdullahazeez@hotmail.com
http://www.nation.com.pk/daily/jan-2006/9/bnews6.php
|
