SNGP Plans to Cut 354 MMCFD Gas Amid RLNG Surplus
Staff Report
Sui Northern Gas Pipeline Limited (SNGP) anticipates suspending up to 354 MMCFD of natural gas purchases from local E&P companies due to the excess RLNG supply and reduced demand from captive users.
Topline Research said that the government may also enter negotiations with Qatar to reduce either the number or price of RLNG cargoes. The existing 15-year agreement signed in February 2016 allows a price review after 10 years, i.e., February 2026. If a consensus isn’t reached, the deal’s duration could be shortened to 11 years, according to reports.
This compares to 86 MMCFD projected in the FY25 review. If local gas supply is curtailed, associated crude oil production could decline as well, negatively impacting GDP, particularly the mining and quarrying segment, which holds a 9% weight in the industrial sector. E&P company profitability would also suffer.SNGPL Signs LPG Distribution Agreement with SLL
Sui Northern Gas Pipelines Limited (SNGP) has proposed to the Oil and Gas Regulatory Authority (OGRA) a 40–42% hike in gas prices starting July 2025 to cover a revenue shortfall of Rs207 billion. This shortfall stems primarily from two factors: an expected loss in revenue due to the diversion of gas from captive power plants to domestic consumers amid excess RLNG in the system, and the inclusion of Rs96 billion in late payment surcharge.
SNGP expects the diversion of RLNG to domestic consumers in FY26 to rise to 242 MMCFD, up from 164 MMCFD approved by OGRA for FY25. This additional 78 MMCFD, sold at a lower average price of Rs1,000/mmbtu to domestic consumers instead of Rs3,500/mmbtu for captives, is expected to create a Rs70 billion shortfall.
The Rs96 billion late payment surcharge included in the Estimated Revenue Requirement (ERR) for FY26 is in line with past practice. However, OGRA typically disallows this, and a similar decision is anticipated. Excluding this surcharge, the required price hike would drop to 19–20%.
The required return on operating fixed assets is projected at 23.39% for FY26, down from 25.92% in FY25, due to a decline in the cost of debt (KIBOR). SNGP has proposed an average fixed asset base of Rs124 billion for FY26, compared to Rs109 billion allowed in FY25, reflecting a net increase of Rs15 billion.
Unaccounted for Gas (UFG) is projected at 7.25% in the ERR, but this figure typically undergoes revisions. Assuming a 1% UFG disallowance and 88% of finance cost as pass-through, the company could generate EPS of over Rs25/share. A 10% disallowance in finance cost would reduce EPS by Rs1.7/share, based on a loan book of Rs135 billion.
Looking ahead, the government’s broader objective under the IMF program is to shift consumption to the national grid by discouraging captive power generation. While a commitment was made to disconnect gas supply to captives by January 2025, the government has instead imposed a grid levy of Rs791/mmbtu (effective March 2025) to push this transition. However, a court-issued stay order has stalled this move. Tariffs and levies on captive users are expected to continue rising until the cost of captive power aligns with grid electricity.
