Energy availability has become one of the most significant needs of the developing economies and Pakistan is no exception. Pakistan has been facing perpetual energy crises. The energy mix of the country is not fairly balanced as it is dominated by traditional fossil fuels like oil and natural gas with a little to minute role of hydel, coal, nuclear and modern day alternate fuel sources of wind, bio-gas and solar.
Pakistan’s economic growth demands higher energy inputs whereas indigenous oil and gas production is not sufficient enough to quench energy thirsty economy of the country. Besides other factors like international economic crises and pressures of war on terrorism, energy shortages have also played a vital role in decline in country’s GDP growth during last few years.
Pakistan’s primary energy supply mix clearly shows Natural gas as playing major role in country’s economic development by accounting for nearly 50% of its total primary energy supply mix. Pakistan’s Natural gas production has remained stagnant at nearly 4,000 mmcfd during the last decade. Over last few decades, Pakistan has developed a formidable gas sector. Its economy has so far survived due to abundant initial gas discoveries. The Natural gas market of Pakistan is among the biggest in Asia and is some what comparable with the size to France and Netherlands. Pakistan was gas sufficient till 2005 however after that gas production didn’t keep up with the gas demand. The constrained demand of Natural gas is 6,000 mmcfd whereas the unconstrained demand is 8,000 mmcfd (8 BCFD) or even potentially higher than this during winters when the domestic gas demand surges exponentially.
Pakistan’s total Natural gas Transmission and Distribution (T&D) network is approx 150,000 Kms with the consumer base of nearly 7.5 Million. During last 5 years, on average, approximately 0.38 million consumers were added on the pipeline network of the country despite a decline in natural gas volumes. This also shows that demand of natural gas is high in the country. Piped gas is available to only 25% of population.
The T&D network of the country is administered by two Government owned companies i.e. SNGPL and SSGCL. Sui Northern Gas Pipelines Limited (SNGPL) supplies natural gas in the northern part of the country i.e. the provinces of Punjab, Khyber Pakhtunkhwa and State of the Azad Jammu and Kashmir while Sui Southern Gas Company Limited (SSGCL) caters to gas needs of consumers in southern Pakistan i.e. the provinces of Sind and Balochistan. The consumer price of gas is regulated and determined on the basis of a fixed rate of return on the assets of gas utility companies by the Government of Pakistan. The Oil and Gas Regulatory Authority (OGRA) is publishing and overseeing Natural gas consumer prices in the country.
The peculiar energy mix of the country created space for oil as a major fuel source for power generation which resulted in piling up of circular debt. The gas dependant sectors are suffering with the number of power plants shut down on account of uneconomical fuel use (HSD), rationing of gas. This resulted in enhanced imports of urea. The largest use of natural gas is in power sector followed by domestic, fertilizer, industrial and transport sectors. Pakistan is being ranked as the World’s top CNG consuming country with approximately 3 million vehicles running on CNG, having been invested $0.5 billion comprising mainly of machinery and CNG kits. During winters (December to February) gas supply to CNG Stations is completely cut off in Punjab under the load management as its share in gas supply is about 5% while consumption is approximately 46% of national gas consumption. The choice of conversion from petrol to CNG is basically due to the fact that prices of CNG are significantly less than that of petrol. The low pressure issues are faced by the consumers especially by those situated at the tail-end of our distribution network, mainly during winter. Pakistan is the sixth largest urea producer in the World with total installed capacity of 6.9 million tons whereas the domestic demand stands at around 5.9 million tons despite which the country has to opt for import option as production falls short of demand due to intermittent gas supplies.
The gas shortages in the country resulted, among affecting other sectors, in curtailment of supply to power producers, contributing to the electricity load shedding which in turn badly impacts the economy. The economic cost of the Natural gas shortages is incurring one billion dollars per years, as the country has to import expensive furnace oil, kerosene, LPG and diesel to make up for its energy requirements. The country is facing severe Natural gas shortages to the tune of nearly 2 bcfd.
Government of Pakistan (GoP) is taking following steps to overcome the shortage of Natural gas in the country:
i. Restrain Natural gas demand at current level,
ii. Enhance indigenous gas production,
iii. Import of Gas from Iran (IP Pipeline),
iv. Import of Gas from Turkmenistan (TAPI Pipeline),
v. Import of LNG.
It may not be a logical approach to restrain the demand of energy products at a certain levels unless a cost effective alternative is provided to consumers. There emerges a need for multiple sources of energy so that if one source dries up or is not available for what so ever reasons, the other option is there to fill the gap. For geopolitical reasons, pipeline imports have failed to materialize and have been termed as pipedream by the international energy experts because of security concerns involving Afghanistan’s terrain and financial difficulties associated with the projects.
Indigenous exploration and production of oil and gas in the country can help in huge monetary savings and would go a long way in enhancing Pakistan’s national security and buttressing energy self reliance of the country with more anticipated infrastructure developments in the areas of the country which are somewhat less developed. Geographically speaking, Pakistan is best positioned to act as the energy corridor as it is in a good location for pipelines to come through it. The 42 inch – 750 mmcfd Iran-Pakistan (IP) pipeline, first conceived in 1995, got delayed due to international sanctions on Iran and the first gas shipment from it will not be available till the end 2017. Iranian gas is an energy lifeline for Pakistan with longer future availability from a country having the World’s second largest gas reserves. Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline which is 56 inch – 1,325 mmcfd capacity is not available before end 2019.
Liquefied Natural Gas (LNG), therefore, remains the only immediate cost-effective solution for Pakistan’s energy problems. LNG is a game changer which could help the resource constrained Pakistan save more than a billion dollars per year in cost-to-energy terms.
After ten years, five failed attempts at various times by the four consecutive governments for setting up LNG infrastructure in Pakistan, the country’s first LNG terminal got completed and country’s pipeline network saw its first LNG molecule on 28th March 2015, just less than 11 months from date of contract award i.e. 30th April 2014. A 100% Government owned company Inter State Gas Systems (ISGS) with expertise in handling large international infrastructure projects like IPI and TAPI; was mandated the task to coordinate the Fast Track Project by facilitating the acquisition of LNG services through an open competitive bidding process. GoP’s entity i.e. SSGCL was assigned to enter a 15 years contract with Engro Elengy Terminal Limited (EETL). As per GoP’s above scheme, the terminal will be for tolling services having a contracted capacity of 200 MMCFD of RLNG in year-1 and 400 MMCFD from year-2 till the end of contract term of 15 years whereas EETL’s FSRU shall be capable of pumping 690 mmcfd (peak) of RLNG into the grid with an average output of 600 mmcfd.
Pakistan’s LNG receiving infrastructure for offshore regasification terminal is being served by a Floating Storage and Regasification Unit (FSRU). An FSRU is a flexible, cost effective way to receive and process shipments of LNG. FSRU is increasingly being used to meet natural gas demand in smaller markets or as temporary solution until onshore facilities are built. It is likely to remain a preferred technology option for emerging markets because of its flexible deployment capabilities, smaller capacities, quick start-ups and relatively low costs compared to those of onshore terminal.
The LNG supply chain is a captious process and stability of supply is the most important factor in LNG procurement. In order to secure long-term LNG the countries have to pay certain premium. There is no LNG benchmark in the world and LNG prices are affected by a variety of financial, geographical, and political variables. LNG trading portfolios are built on a mix of long-term, medium-term, and spot procurement at significantly different price levels. Pakistan will need several long-term and medium-term LNG contracts in addition to spot LNG procurement to satisfy its demand.
LNG import is a major milestone for Pakistan’s gas sector. LNG development will serve as an impetus for growth not only in gas sector but also in gas consuming sectors including fertilizer and power sector. Pakistan State Oil (PSO), state owned oil marketing company, has been assigned the task of LNG imports from Qatar. Pakistan State Oil (PSO) and Qatargas Operating Company Limited (QOCL) were nominated by the two respective governments to negotiate the LNG Sales Purchase Agreement (LNG SPA).
At present, SNGPL and SSGC have the capacity to transport only 400 mmcfd of LNG through their pipeline networks. Pakistan’s North side is with intense appetite for Natural gas. For laying an LNG pipeline from Lahore to Karachi, called North-South pipeline, Pakistani and Russian governments signed an agreement last year. Russia would spend 85% of the $2 billion cost of the project. Pakistan and China signed a government-to-government deal to develop the Gwadar LNG pipeline and terminal. China would provide 85% of financing at a concessionary rate for the pipeline, which is expected to cost less than $2 billion.
Pakistan and Qatar during last month have signed a worth $16 billion deal of LNG for a period of 15 years. Pakistan has been suffering through a severe energy crisis and the import of LNG from Qatar would be a positive step to address the issue. The deal has large prospects for the energy sector as Pakistan would be able to meet its energy requirements. 3.75 million tons of LNG would be imported annually on a government-to-government basis. The price of 13.37pc of Brent value has been agreed which is claimed to be a cheaper one than the gas to be imported through pipelines projects including Iran-Pakistan (IP) and Turkmenistan-Afghanistan-Pakistan-India (TAPI) projects.
In the first phase, from 2016 to first quarter of 2017, the annual contract LNG quantity would be prorate of 2.25m tons which would be increased to 3.75m tons per annum beginning second quarter of 2017. The long-term agreement would also provide for annual upward and downward flexibilities of up to three LNG cargoes against per contract year. The LNG deal would also provide the LNG to Pakistan on a 15-day defer payment scheme against the earlier settlement of defer payment for 10 days.
Regasified LNG (RLNG) is the most cost effective fuel for power generation due to greater efficiency, low maintenance costs, ease of transportation, no pilferage or adulteration and minimal environmental impact. Pakistan is expected to be a 20 mtpa (2.5 bcfd) market within 3 years with anticipated ranking of being among top 5 importers of the world. LNG imports will help diversifying energy portfolio of the country being a short-medium term solution however in order to achieve sustainable energy development and foster investment and economic growth of the country it will have to keenly focus on such multiple energy fronts.
By RAHIL IHSAN PITAFI
Mr. Rahil Ihsan Pitafi is a graduate Chemical Engineer (2006) with additional qualifications of Executive MBA – Project Management (2009), Master in Energy Management (2010) and MS in Supply Chain Management (currently in final semester).
Beside studies, Mr. Pitafi has acquired approximately nine (09) years of work experience with the energy regulator i.e. Oil and Gas Regulatory Authority (OGRA) of Pakistan which was established in 2002.
Mr. Pitafi has an extensive experience as regards regulation of natural gas sector of Pakistan. He remained involved in development of Natural Gas Transmission and Distribution Standards, Natural Gas Regulated (Third Party Access) Rules 2012 and grant of 7 licenses to various local and international LNG Project Developers.
Since year 2011, Mr. Pitafi has been working as Assistant Executive Director (LNG) and dealing with regulation of LNG Sector which is a developing sector. He has worked from start to consultant appointment and during commissioning, operation and issuance of license to Pakistan’s first ever LNG Re-gasification Terminal (Engro Elengy Terminal Limited).