ALTERNATE RESOURCES

AROOJ ASGHAR (arooj.asghar@crosby.com)
Dec 03 - 09, 2007

With a population of over 160 million, Pakistan's economy is currently growing at a rate of over 7%, supported mainly by an expanding industrial sector that currently contributes to 38% of the economic output and is growing at a rate of 12.5%. Per capita energy consumption of the country is estimated at 14 million Btu, which is only a fraction of other industrializing economies in the region such as Thailand and Malaysia. With around 30% of the households that have yet to receive electricity, and only 25% of the households that have access to pipeline gas, the energy sector is expected to play a critical role in economic and social development.

The relationship between energy consumption and economic growth is a well established fact, yet in Pakistan its correlation remains a question mark. Pakistan's policy makers often get confused whether economic growth leads to energy consumption or that energy consumption is the engine of economic growth. Like other developing countries Pakistan is also an energy intensive growing economy, and as in most other non-oil producing countries its energy needs are met by large quantities of imports. The ACGR (annual consumption growth rate) of net consumption of total energy is 6.4%. The share of oil, gas and electricity is 48%, 30% (of which more than half is used for electricity) and 15%respectively. The share of imported oil was 85% of net consumption of oil in 2006-07, which is about 40% of total net consumption of energy in the country. Thus to meet its growing needs of energy, Pakistan faces both energy constraints from the supply side and demand management policies. However, for any such policy making it is essential to determine the causal relationship between energy consumption and general economic activities.

Energy sector in Pakistan comprises of electricity, gas, petroleum and coal. The primary commercial energy supplies increased to estimated amount of 60 million tones of oil equivalent (MTOE) during 2006-07 as compared to 57.9 in 2005-06 and 55.5 (MTOE) in 2004-05. According to the Economic Survey of Pakistan, consumption of petroleum products has decreased by an average rate of 0.4 percent per annum from 1996-97 to 2005-06. The consumption of gas, electricity and coal on the other hand, has increased at an average rate of 7.8 percent, 5.1 percent and 8.8 percent per annum, respectively.

According to the latest available "Pakistan Energy Year Book 2006 compiled and published by Hydrocarbon Development Institute of Pakistan (HDIP), there is an increase of 4.18% in 2005-06 whereas estimated growth for 2006-07 is 5% based on few facts, the reason for estimate for already closed year is that HDIP has not yet issued the final numbers of 2006-07. The slower growth of primary energy supplies can be attributed to: (i) lower consumption of High Speed Diesel (HSD) in transport sector, and (ii) sharp reduction in coal imports by Pakistan Steel. The decline in primary energy supplies has been compensated by sizeable increase of 20% in hydel generation. The share of natural gas in primary energy supplies reached 50.4% followed by oil (28.4%), hydro electricity (12.7%), coal (7.0%), nuclear electricity (1.0%) and LPG (0.4%).

In recent days, international oil prices have touched 100 dollar per barrel whereas OGRA is going to increase oil prices in Pakistan by almost Rs 8, this would be first revision in 19 months. This huge increase will definitely bring new heights in inflation rate. Pakistani nation is living in a highly volatile region of the world and under current US - Iran crises, which seems to have no early solution, no one is sure where oil prices will reach but in most recent OPEC meeting it is said that oil prices will reach 200 dollar per barrel if US attacks on Iran. World has witnessed new heights of oil prices in recent days. Whatever be the US strategy for the Middle East and Central Asia, Pakistan should seriously understand its needs and must have to decline its reliance on imported expensive fuel. During the last fiscal year, Pakistan used billions of dollars of its prestigious tax payer's money for import of furnace oil. It is hard to forecast how international oil market reacts if US - Iran relations get worse. But the point of concern for Pakistan is that how its economy would absorb 200 dollar per barrel or even 100 dollar per barrel. In addition to the huge financial burden on the economy and on the people, the situation also raises some new issues of the security of supplies. Secondly, expensive fuel is not the only issue; fuel handling capacity in Pakistan is also an emerging issue. Fuel handling capacity in Karachi is reaching its maximum and with the construction and operation of new sea port at Gawadar, the problem doesn't seem to resolve as since long fuel has been transporting from Karachi to the rest of the country but now onward it might also be coming from Gawadar. The transportation system from this area needs a time test. As of now, there are few reservations on this which can only be resolved with the passage of time. As 33% of the power generation is based on oil therefore any hindrance in the transportation of oil can cause severe damage to the economy. In short, time has proved that the best solution for all such problems is encouragement and development of indigenous resource. The more we rely on foreign expensive source the more we would be inviting complications and difficulties for ourselves.

COAL -The coalfield in Sindh province has huge coal resources of 175 billion tons. Due to import of high cost energy resources, government should enhance the share of coal in the over all energy mix. Almost 80% of cement industry has now switched over to indigenous coal from furnace oil that has saved considerable foreign exchange which was being spent on the import of furnace oil. The conversion of all cement industry to coal would generate demand for, according to an estimate, approximately 2.5 million tons of coal per annum by 2010. In view of anticipated shortfall of electricity and other energy resources during the next 10 years the maximum utilization of the indigenous coal would be required in power generation and gasification. Recently, a Chinese company has completed mining feasibility study for commissioning of two power plants of 300 MW each and is finalizing its feasibility study for power generation. To ascertain the techno-economic viability of Thar coal for gasification, government should take courageous steps so that those huge reserves could be effective and properly used. There is no doubt that there is a sufficient demand in the country for coal utilization due to existing high prices of other conventional fuels i.e. oil. Therefore, efforts must be made for the utilization of coal. According to government sources, utilization of coal is being considered for the production of town gas in areas having coal deposits. In order to access this, SNGPL is in the process of preparing a feasibility report for the commissioning of town gas plant at Bhakkar (Punjab). In view of big shortfall in electricity and other energy sources during the next 10 years maximum utilization of coal will be most appropriate for power generation and gasification. Unfortunately, present share of coal in the overall energy mix is only about 5%, which needs to be increased. It is worthwhile to note that in India the share of coal was as high as 50% in the total energy mix in 2006 and power generation accounts for about 70% of India's total coal consumption. Despite the fact that Indian coal is of poorer quality with low in caloric content and high in ash and located far from major consumption centers its coal consumption is estimated to increase to 510 million short tons by 2020 from over 400 short tons in 2006. China is producing more than half of its electricity through thermal power stations run by coal. In order to utilize the coal potential, Pakistan should acquire expertise and technology to eliminate hazards and pollution from coal fired thermal power stations. Besides indigenous coal, Pakistan is also importing coal for its domestic needs, Steel Mill and few cement plants are importing coal for their usage. Due to lack of interest shown both by the private sector and government in the development of the Thar coal reserves and urgency of the matter, Government of Pakistan has issued two letter of interest in 1st quarter of 2007 to two foreign companies for setting up 1,000 MW each power plant on imported coal. There are few merits and demerits of this decision but on a larger perceptive it can be called easy solution for diversification of fuel mix and reliability on certain geographical region.

IMPORT OF GAS -The importance of natural gas to the country has been increasing rapidly. By the end of 2006, Pakistan's recoverable natural gas reserves were estimated at 31.81 trillion cubic feet. Natural gas is used in general industry to prepare consumer items, to produce cement and to generate electricity. In the form of CNG, it is used in transport sector and most importantly to manufacture fertilizer to boost the agricultural sector. With the passage of time, growing demand and nearly dull activity in additional exploration of natural gas, Pakistan's gas reserves are depleting. According to one estimate, by the end of 2011, Pakistan will be facing sever shortage of gas and load shedding of natural gas will be started as well by the end of 2008. Due to this crisis, Pakistan is working on Iran-Pakistan-India gas pipeline project which will start supplying gas by 2009-10. This project is at very advanced stage despite of the pressure from USA. With this project, Pakistan will also earn US$700 million per annum as transit fee from India.

LIQUEFIED NATURAL GAS (LNG) - The use of LNG and its demand worldwide has increased by nearly 40% between 2002 and 2006 because it is cleaner and less carbon intensive than oil or coal. LNG also has many advantages for storage and distribution over natural gas. Pakistan has the world's second largest pipeline network of the natural gas after the United States. Government of Pakistan issued its first ever LNG policy during 2005-06, which encourages the private sector to invest in this sector. Government's decision to establish an offshore LNG import terminal at Port Qasim can be called a major step towards increased availability of liquefied natural gas in the country through import. On the advice of Government of Pakistan, Port Qasim Authority has signed an agreement with Pakistan Gas Port Limited.

Liquefied Petroleum Gas (LPG) - LPG is being used by cars, pickups, rickshaws and even motorcycles in area where CNG is not available due to the absence of natural gas distribution network. Government has given number of financial incentives to LPG importers so that oil bill can be reduced.

COMPRESSED NATURAL GAS (CNG) - In order to reduce pollution caused by vehicles using oil , growing number of vehicles have been converted to CNG power by the private sector to take advantage of the relatively low price of CNG fuel. According to an estimate, around 30,000 vehicles are being converted to CNG every month whereas Pakistan has already become second largest user of CNG. In view of short supply of oil, there is a scope for development of alternate fuels, especially natural gas that is locally available at low price along with a widespread infrastructure for transmission and distribution network.

HYDRO POWER - Though Hydro power stations cost more to build than coal, oil, or natural gas burning plants but once they are built, the energy to run them is free, while thermal generation plants have to buy their fuel. This makes hydro plants inflation proof while the cost of fuel for the other plants increases. Hydro plants also last longer. Project like small hydro plants can be built quickly, and will provide electricity long before large hydro plant or most kinds of fuel-burning generators. Small hydro projects are labor-intensive and well suited to operate by local people. While the initial cost of the plant can be quite high but a good part may compensate from on-site construction, which can provide jobs and training to local residents. This appropriate technology of small hydro development is often accompanied by other beneficial developments such as irrigation, water supply sanitation, and fish farming. The associated social benefits of jobs, training, community co-operation, opportunities for small manufacturing development etc., can be highly beneficial. Hence establishment of small hydel power stations at potential sites is recommended.

Pakistan is fortunate enough to have abundant natural resources, Despite all the sky high claims, almost nil has been done in hydro sector in Pakistan in last 8 years. One of the greatest tragedies going to happen in next 2/3 years with this country is loosing Indus water to India because of zero activity on Nelum Jehum Hydro Power Project. Interestingly either the Pakistan's "Visionary Leaders" are stuck on allowing/ disallowing few cents in tariff or running after their angry technical consultants. According to Indus Water Treaty, who ever first build dam on this river will get the priority right on water and in contrast to Pakistan's indispensable leadership, Indian leaders not only worked on their project but also have completed 70% of the construction work. Soon Pakistani nation will be hearing the words from their policymakers that lets forget the past and move forward as such moments do come in the lives of living nations. Resultantly ever smiling Pakistani nation will continue bearing expensive oil, electricity, goods and soon water.

An assessment of the current and projected energy requirements of the country and additional costs for energy imports under alternative scenarios and options leads to the conclusions that while Pakistan has substantial coal and hydel resources where it is not possible to develop and utilize these resources in the short term in view of inherent constraints but process can be started so that Pakistan could be in better position in coming days a head. It is also important to reduce the dependence on the imported energy therefore indigenous resources must be developed as soon as possible without going into minute details. If lucrative benefits can be given to foreign companies then why not to locals. It is also vital to diversify the mix of imported fuels i.e. oil and coal, keeping in view the -political situation of this region. Imported gas can deliver energy at competitive prices in the near term to meet the demand of priority consumer segments such as the residential, industrial and power sectors. The sooner Government of Pakistan takes decision better it is otherwise, Pakistan would surely not be in a position to compete the world market, will have to forget its GDP growth rate of 7% and becoming a financial hub of the region.