Pakistan Lifts Ban on New Gas Connections, Offers Relief and Challenges

Islamabad: The federal cabinet of Pakistan has lifted the ban on new gas connections, a move that could provide a boost to domestic exploration and production (E and P) companies but at a higher cost to consumers. New connections will be offered at the rate of Re-gasified Liquefied Natural Gas (RLNG), priced at approximately $12-13 per million British thermal units (mmbtu), significantly higher than the current subsidized rates.

The new pricing scheme presents a stark contrast to existing subsidized rates, which range from Rs200 to Rs1,250 per mmbtu. While these new rates are cheaper by 35-40% compared to current Liquefied Petroleum Gas (LPG) prices, which stand at Rs6,000 per mmbtu, they still represent a substantial increase for consumers accustomed to subsidized gas.

The lifting of the ban primarily affects new housing societies that have been relying on LPG in the absence of natural gas connections. Government officials indicate that the shift away from a blanket subsidy model is likely, as the current system benefits 70% of residential households and imposes a financial burden on the industry.

The new policy could lead to a convergence towards uniform gas pricing. The government has committed to the International Monetary Fund (IMF) to implement a targeted and budgeted gas subsidy framework, moving away from the current cross-subsidy system.

The decision is expected to positively impact Pakistani E and P companies, such as Pakistan Petroleum Limited (PPL), Oil and Gas Development Company (OGDC), Mari Petroleum Company (MARI), and Pakistan Oilfields Limited (POL). These companies have faced a reduction of over 300 million cubic feet per day (mmcfd) in gas supply due to the previous connection ban. The policy change, along with potential cargo diversions from Qatar in 2026, could enhance production volumes for these companies.

Sui Northern Gas Pipelines Limited (SNGP) and Sui Southern Gas Company (SSGC) are also anticipated to see improvements in cash flow. Currently, both companies supply gas to 10.5 million domestic connections with a supply capacity of 768 mmcfd. With pending gas connection requests amounting to 3.5 million nationwide, there is potential for an additional consumption of 250 mmcfd of gas.

The implementation of the new gas connection policy is awaited, as stakeholders anticipate its impact on both consumers and industry.