KARACHI: Insurance of Engro’s LNG floating terminals will end on June 30 this year, but the federal government has turned down its request to replace its Floating Storage Regasification Unit (FSRU) with a new one having higher regasification capacity.

It is learnt that government may allow Engro to replace the LNG floating terminal in August this year in a bid to avoid the looming energy crisis.

Engro claims that its insurance certificates were valid till June 30, 2021 and therefore, it is seeking permission to replace it with another floating LNG terminal, a source in Islamabad said. It would be harmful to use floating terminal without insurance certificates, he added.

Earlier, the Cabinet Committee on Energy (CCoE) on last Friday had refused to allow Engro to replace the existing FSRU with a new one having higher regasification capacity due to the peak summer season.

Now, the cabinet committee on energy will meet on Thursday (today) to take a decision in view of legal opinion. A source in Islamabad added that it is an urgent issue because the Engro energy gas company-EETPL agreement with the FSRU-floating LNG terminal is expiring on June 30.

In addition to it, CCOE will also look into the progress report on new LNG terminals. Tabeer Energy and Energas are setting up two LNG terminals in private sector without government guarantees.

Gas companies have already allocated pipeline capacity to these two LNG terminals and the committee will discuss progress made on this front.

ENGRO SAYS DRY DOCKING IMPERATIVE:

Meanwhile, Engro in a statement said that the planned dry docking of LNG Floating Storage Regasification Unit (FSRU) Exquisite, currently in use by Engro Elengy Terminal (EETL), by June 30 is in accordance with the supply agreement with SSGC and unavoidable under international laws.

EETL, which has been in discussion about dry docking with SSGC and all relevant government stakeholders since October 2019, notified them about updates on the dry dock activity on March 30, 2021, after a survey report issued by the Class Society – responsible to maintain overseas certifications of FSRU under international laws – made it clear that FSRU Exquisite must be sent for dry docking latest by June 30, 2021. The Class Society had already extended the certifications twice due to Covid-induced disruptions that led to port shutdowns and unavailability of experts. Excelerate, the US firm that owns FSRU Exquisite, has also confirmed that the vessel cannot be operated without Class Society certifications beyond the end of June.

Since the March notification to stakeholders, namely SSGC, SNGPL and PSO, EETL held multiple meetings to seek their cooperation and flexibility to update the annual delivery plan to accommodate the dry dock activity. Under the agreement, the annual delivery plan is non-binding and changes in the plan are an operational norm to ensure coordination amongst all stakeholders for any contingency planning. However, no progress was made as SSGC feared exposure to liquidity damages from SNGPL for any disruption in gas supplies.

Therefore, SSGC continued to resist change in the annual plan to allow for the mandatory dry dock activity to maintain class certificates and as required under the LSA as well. As the deadlock persisted, the matter was escalated to the Ministry of Energy and, subsequently, it was put forward before the Cabinet Committee on Energy (CCOE).

According to an Engro official, “Engro Elengy and the operators of Exquisite had made their best efforts to coincide the vessel replacement with shutdown already planned by the gas companies for August. In previous engagements, the stakeholders had never raised any concerns about dry docking around the end of June as long as the liquidity damages from SNGPL were waived off to SSGC which was an inter-ministerial matter.”

The official added, “Under the agreement with SSGC, the FSRU is required to dry dock twice over the 15-year period. The dry-docking period is counted as shutdown days and the prior notification to all stakeholders was given to ensure adequate planning for the country’s energy needs. Vessel integrity related shutdowns are always managed mutually, but this activity has been trivialised, which has caused a delay in decision making.

We are continuously engaging with all stakeholders and seeking their support to ensure the dry-docking activity and switch over with more capable FSRU Sequoia is done smoothly. The dry dock shutdown can be for more than three months, however, the replacement ship will enable for regasification services to resume within three to four days.”

The replacement ship Sequoia, arranged by EETL at its own cost and risk, is expected to reach Pakistan on June 26. The company has assured all stakeholders that Sequoia is a more capable and efficient vessel, with a regasification capacity of 780 mmcfd, that will meet all performance obligations under the agreement.

The author is a senior business reporter with bylines in leading newspapers and magazines across Pakistan.

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