ISLAMABAD: As a demand-side intervention, the government is cautiously considering lifting the ban on new gas connections to ease pressure from a persistent surplus in the gas supply chain that threatens the integrity of pipeline infrastructure and risks breaching sovereign international commitments.

Informed sources said the Ministry of Finance recently proposed revisiting the moratorium as a potential solution to manage surplus liquefied natural gas (LNG), which is also placing additional strain on foreign exchange reserves due to higher import costs.

Currently, more than 3.5 millionapplications for new gas connections are pending with Sui Northern Gas Pipelines Ltd (SNGPL) and Sui Southern Gas Company Ltd (SSGCL). While granting new connections allows gas utilities to claim a guaranteed return on fixed assets such as pipelines and related infrastructure, it also exacerbates gas losses, lowers revenue recovery, and deepens winter shortages.

The moratorium, originally imposed in 2009, was partially lifted after six years but reimposed in 2022 amid rising gas shortfalls. Even with existing consumers, particularly in Punjab and Khyber Pakhtunkhwa, SNGPL faces severe winter shortages. The diversion of expensive LNG to residential users is already contributing to a circular debt crisis, with gas companies incurring annual revenue losses of around Rs200bn due to these LNG diversions.

The government is grappling with a paradox: on one hand, economic slowdown and unaffordable electric-ity tariffs have forced industries to shut down captive gas power plants; on the other, LNG infrastructure builtat acostexceeding$7bn based on sovereign commitments remains underutilised.

Initially, four `must-run` power plants with a combined capacity of over 5,000MW were mandated to use 66pc LNG under long-term contracts signed in 2015-16 and 2020-21. This has now been reduced to 33pc, and those plants remain off-grid through tactical operations, shifting the circular debt burden from the power to the petroleum sector. This has engulfed upstream, midstream, and downstream stakeholders, from Pakistan State Oil to Sui gas firms and exploration companies.

To accommodate imported LNGpriced more than double that of domestic gas-over 300 million cubic feet per day (mmefd) of domestic gas production has been forcibly curtailed. This approach not only risks depleting domestic gas reserves butalso inflicts billions of rupees in weekly losses on local producers while undermining future exploration and development. At least three monthly cargoes under long-term contracts with Q atar have become surplus.

This is in addition to one diverted LNG cargo per month under a separate long-term contract, originally guaranteed by Pakistan. During last winter, five LNG cargoes-roughly 500mmefd-were deferred. These will need to be rescheduled in FY2026, alongside Pakistan`s routine annual LNG imports of around 150 cargoes.

Gas utilities remain hesitant to expand sales under existing consumer-end gas tariffs without structural reforms. Despite natural gas being nearly four times cheaper than liquefied petroleum gas (LPG)used widely in rural and increasingly in urban areas-successive governments have failed to rationalise these distortions.

One proposed solution is to allo-cate all domestic gas exclusively to residential users, and use imported LNG for the industrial, power, and fertiliser sectors. These sectors have withheld over Rs400bn in gas infrastructure development cess (GIDC) for nearly a decade. Another proposal is to initiate political consensus on the implementation of a weighted average cost of gas (WACOG) to establish a uniform basket price combining local gas and LNG.

Officials indicated that around 120,000 new gas connections are planned for the current fiscal year, including roughly 1,000 for commercial and industrial users. Of these, approximately 86,000 would be provided by SSGCL in Sindh and Balochistan, while around 35,000 connections would be allocated by SNGPL in Punjab and KP.

The government has recently notified a 50pc increase in fixed gas charges for all consumers, along with up to 17pc higher per-unit rates for industrial, power, and bulk users,effective from July 1. These revisions are expected to impose an additional financial burden of about Rs85bn in FY2025-26 to meet structural benchmarks under the International Monetary Fund (IMF) programme.

The price hike includes Rs31bn in surplus funds for SSGCL, Rs41bn for SNGPL to address their revenue shortfalls, and Rs13bn in additional general sales tax revenue for the federal government. The revised revenue requirements for FY26, as determined by Ogra, stand at Rs888.6bn comprising Rs534.458bn for SNGPL and Rs354.2bn for SSGCL.

The imposition of a captive levy on industrial gas users has led to significant demand destruction. SSGCL`s sales to captive plants fell from 180mmefd to 75mmefd, while SNGPL`s dropped from 175mmefd to just 35mmefd. Notably, this levy does not apply to private or third-party gas suppliers, further distorting the market.