KARACHI: The gas sector currently faces a challenging outlook as indigenous production continues to decline, liquefied natural gas (LNG) demand remains subdued and gas distribution companies struggle with mounting liquidity pressures, while proposed structural reforms are unlikely to provide an immediate solution to the sector’s financial problems.
Indigenous gas production is projected to fall sharply from around 2,634 million cubic feet per day (mmcfd) in FY24 to approximately 1,266 mmcfd by FY34. As a result, the share of domestic gas in total supply is expected to decline from around 73 per cent to just 25 per cent, according to a new study by the Pakistan Credit Rating Agency (Pacra) on the gas sector.
In the near term, LNG demand is also expected to remain subdued. LNG imports fell from around six million tonnes to approximately 3.7 million tonnes during the first nine months of FY26, as industrial and power-sector consumers increasingly shifted towards solar energy and other alternatives, the study said.
It said the Turkmenistan-Afghanistan-Pakistan-India (TAPI) and Iran-Pakistan pipelines can provide greater diversification of gas supplies over the longer term. However, continued delays mean their contribution to the country’s near-term energy requirements remains uncertain.
The financial position of gas distribution companies is another major concern. Working-capital pressures have intensified, while further delays in tariff adjustments and weak recoveries can exacerbate liquidity constraints and increase the companies’ borrowing requirements.
The liquefied petroleum gas (LPG) segment presents a relatively brighter outlook. Local LPG production increased by around 15.5 per cent in FY26, while imports declined 12 per cent year-on-year to approximately 1.5 million tonnes. Additional production capacity of around 136,000 tonnes a year can further support domestic supplies.
However, the government’s FY27 import target of around 1.6 million tonnes indicates that Pakistan will continue to depend significantly on imported LPG. Prices and margins will remain vulnerable to Saudi Aramco’s contract price, geopolitical developments, freight rates and rupee-dollar fluctuations.
Meanwhile, the government, with World Bank support, is considering restructuring Sui Northern Gas Pipelines Ltd (SNGPL) and Sui Southern Gas Company Ltd (SSGCL) by separating their transmission and distribution operations.
The proposed model envisages the creation of one National Gas Transmission Company and four provincial distribution companies. The reform package also includes a new multi-year tariff mechanism, third-party access to pipelines and the gradual opening of gas trading to private-sector players. Around 20 per cent of gas volumes could potentially be released to private players in the first year.
The proposed reforms can improve cost transparency, reduce unaccounted-for gas losses and strengthen collections, potentially helping address the Rs3.4 trillion circular debt, according to the study.
However, the benefits are expected to materialise gradually. Resistance from existing gas companies and delays in implementation remain significant risks. The restructuring will also change how SNGPL and SSGCL generate and report margins, making historical profitability comparisons less meaningful. Increased private-sector participation can introduce greater competition and gradually challenge the companies’ existing monopoly positions.
Overall, the gas sector outlook remains challenging in the near term, with declining indigenous production, weak liquidity, high circular debt and uncertainty surrounding major infrastructure projects weighing on the sector.
While restructuring and greater private-sector participation could improve the sector’s long-term efficiency, they are unlikely to materially change its credit profile in the immediate term, the study said.
