ENERGY SECTOR

Natural Gas-Coal, leading players of the future

By AMANULLAH BASHAR
Feb 25,  Mar 10, 2002

Natural gas and Coal are poised to assume a leading role in the energy sector of Pakistan under the policy focused at cutting down the import bill i.e. $3 billion. The import expenditures on account of oil are feared to increase simultaneously with the increase in demand as well as price in future if appropriate steps for import substitutes are not taken well in advance.

The costly import bill for petroleum products claims almost 30 per cent of the total export earnings of the country on one hand while rendering the huge coal reserves and plentiful of natural gas reserves available within the country.

The foreign investors have responded warmly to the incentives offered by Pakistan especially for development of the coal and gas sectors as they are coming up with large investment for power projects in these two areas.

According to official sources, China a trusted friend of Pakistan is coming up with huge investment in three coal-based power projects. Shenhua Group corporation of China has selected a Block in Thar Coal Field to set up a 3000 Mega Watt Power Complex in phases. Investment involved in this huge power complex is estimated at $3 billion.

Another 250 Mega Watt Power Project at Sonda-Jherruck is being negotiated with Jiangsu Mining and Engineering Corporation of China. The China National Machinery Import and Export Corporation has also offered to set up a 100 Mega Watt Power Plant at Sonda-Jherruck.

Besides Chinese investment in coal based projects, Smith Associates Power and Mining Company of USA is conducting a feasibility for a 450 Mega Watt Coal fired power plant at Lakhra on right of first refusal basis in which the direct foreign investment is estimated at $400 million.

Usman Aminuddin, federal minister for petroleum and natural resources while talking to PAGE said that time has arrived to assign greater role to the natural gas in our economy.

The Minister said that Pakistan's total petroleum imports represent 41 per cent of the country's primary energy supply. The value of petroleum imports is estimated at $3 billion, which is eating up 30 per cent of total export earnings every year.

In order to save the hard-earned export receipts and to strengthen the economy, we would have to develop import substitutes luckily available within the country i.e. natural gas and coal reserves.

To meet the gas requirements, steps are being taken for rehabilitation of existing network, additional pipelines and compression facilities.

The additional gas supply of 900 mmcfd through SSGC and SNGPL would cost about Rs20 billion. Financing for these additional supplies would be arranged through own resources and commercial borrowing.

In order to enhance exploration programme, certain steps are underway to accelerate exploration activity in Pakistan.

The minister said that resumption of oil and gas exploration activities in areas under force majeure in Balochistan is also under active consideration of the government.

It may be noted that about 80 per cent oil and gas potential areas are under force majeure where oil and gas exploring companies cannot operate against the will of the tribal population. In order to sort out this problem, 50 per cent of the royalty currently being given to the provincial government may go to the tribal chief while remaining fifty per cent of the royalty to the local government for the development of the remote parts of the country.

This programme, if everything goes well, may help accelerating the exploration activity in Balochistan.

Besides optimizing the indigenous resources, options are also available to import gas from Iran, Qatar and Turkmenistan through pipelines. One of the three-pipeline projects is likely to materialize.

Primarily, the gas pipeline project was designed to route through Pakistan and originally destined for neighbouring India. Negotiations between India, Iran and Turkmenistan are still on. Although the Afghanistan leaders are extending assurances for security of the Turkmenistan pipeline to be passed through Afghanistan yet this project may take some more time to materialize till the settling down of the dust in that country. This project has a length of 1400 kms with a diameter of 48 inches and a supplying capacity of 2 billion cubic feet daily.

Iran-Pakistan gas pipeline has a length of 1650 kms, 48 inches diameter and a capacity of 3 billion cubic feet daily supply. This project originating from Pars North field will terminate at Sui in Balochistan and then onward to India if the deal struck between the countries involved in this cross border pipeline project.

The third option is Qatar-Pakistan gas pipeline of 1600 ms, 44 inches diameter and a capacity of 2 billion cubic feet daily. This project is to be routed through Qatar to Gwadar through Arabian Sea.

Gas storage reserves

The petroleum minister feels that imported gas through one of these pipelines would require large underground storage due to following reasons:

—Meet seasonal primarily fuel demand, particularly in the northern region of Pakistan.

—Meet seasonal demand for power generation, based on the availability of hydro power plants.

—Provide "Parking" capacity in respect of gas import contract obligations.

—Add reliability to gas supply.

—Increase base load.

The minister identified the following spots for possible gas storage reservoirs:

Sui: currently, having a balance of 2.6 trillion cubic feet of natural gas against the original recoverable reserves of 8.6 trillion cubic feet when the production was started from this source.

Mari: currently, having a balance of 4.1 trillion cubic feet against the original recovery reserves of 6.3 cubic feet at the time of inception.

Pirkoh: Currently having a balance of 1.2 trillion cubic feet against the original recovery reserves of 1.8 trillion cubic feet.

Meyal; balance 0.1 MMB while original recoverable reserves were 49.3 MMB

Dhurnal: Balance 0.1 and original recovery reserves 50.9 MMB

Dhullan: fully consumed. Original recoverable reserves were 41.4.

He said that besides swift development of our local gas resources time is ripe to go for cross border pipeline for which three options are available.

Demand

Energy demand grew at an annual consumption growth rate of 4.8 per cent in the last five years and is expected to grow at a similar rate till the end of the current decade.

An analytical review of POL consumption shows that demand for oil and petroleum products has grown at an annual consumption growth rate of 5 per cent, while demand for natural gas grew at an average of 6 per cent. The relative share of gas in primary energy supply has increased from 37 per cent to about 41 per cent in the last five years.

Looking at various advantages, the natural gas has become an obvious choice for developing economies being economically attractive and environment friendly fuel.

Globally speaking, the current natural gas reserves to production ratio at estimated for next 66 years as against oil reserves estimated for next 37 years.

Pakistan scenario

Currently, Pakistan has 24 trillion cubic feet (TCF) of natural gas reserves i.e. equivalent to 467 million-Ton Oil Equivalent (TOE). The current rate of production of natural gas is 0.875 TCF per year, which saves about $3 billion a year for the country.

Total natural consumption during 2000-2001 was estimated at 774 billion cubic feet. Sector-wise break up of the gas consumption indicates 37.1 per cent goes to power generation, transport (CNG) 0.6 per cent, Domestic consumption 18.2 per cent, Commercial 2.7 per cent, Fertilizer (Feedstock) 17.1 per cent, Fertilizer (Fuel) 5.5 per cent, Cement 0.9 per cent while general industrial consumption is estimated at 17.9 per cent.

Gas demand projection

The current demand for natural gas (estimated at 2,061 mmcfd in 2000) is to increase up to 3,559 mmcfd in 2005, 4,785 mmcfd in 2010 and up to 5,755 in 2020.

The government has decided to do away with the royalty, which was so far received by the provincial governments from the oil exploring companies in the energy sector.

According to new formula, out of the 5 per cent royalty, 50 per cent would now go to the tribal Chiefs or Sardars and the remaining portion will be given to the local governments of the respective provinces.

The decision has been taken to give a free hand to the foreign companies engaged with oil and exploration in Pakistan.

It may be noted that the local population demanding their share in the yield disallowed the oil exploration companies to carry on their operations in the tribal areas. If this formula goes on almost 80 per cent of the potential areas in Balochistan would be open to grant concessions to the companies for the research and surveys in the oil and gas sector.

Iran

Iranian Minister for Petroeluem Bijan Namdar Zanganeh, during his recent visit to Pakistan has said that a decision on the issue of taking a gas pipeline from Iran to India either through Pakistan or deep-sea would be taken after completion of studies on both the options.

A Memorandum of Understanding has also been signed with his host counter part, Usman Aminuddin. The end of 2002 would complete the studies on both these alternatives of the super project of gas pipeline.

The pre-feasibility study on taking as pipeline through land route, an option which would result in substantial earning for Pakistan would be carried out by an Australian company Broken Hill, he said.

The other option of laying the pipeline in deep sea, apparently capital intensive preposition, would be studies by an Italian company.

Zanganeh termed the signing of MoU for pre-feasibility study of on-shore line an important step in reaching at a final decision of the project, being debated for the past several years.

We would have no objection on a pipeline for supply of hydrocarbons to India through Pakistan.

Aminuddin has assured Pakistan's political support for the project.

The project has three aspects i.e. Political, economic and tactical. The first phase of the project, which involved political commitment, has been completed.

As regard to other proposals of bringing gas and oil from other regional countries from Gulf or Central Asian countries he said the thrust of the government was obviously on developing indigenous resources. However he said they had always supported projects of regional pipelines.

Earlier Usman expressed Pakistan's strong desire to work closely with Iran on different projects in the field of oil and gas.

We are ready to move forward quickly and a Pakistani delegation would shortly visit Iran for further discussion on proposals of exporting motor gasoline to Iran, promoting vehicular use of CNG in Iran and curbing smuggling of petrol from Iran to Pakistan.

Zanganeh when asked about the financing of the pipeline project said that total cost would be over four billion dollars and a consortium of International banks and financial institutions would have to be engaged for the provision of funds. He said the talks with the ADB and other international banks should start for lining up the funds.

Talking about smuggling Aminuddin said it was an issue which was concerning for both Iran and Pakistan. He said Iran had been heavily subsidizing its petroleum products and the smuggling was equally hurting them besides causing harm to Pakistan's economy.

SHORT SUPPLY

Beside development of local gas infrastructure to meet the growing need of industrial and power sector, the import of gas gradually become imperative to respond to the economic needs of the country.

In the power generating sector, WAPDA is already facing acute shortage of about 250 to 300-mmcfd gas whereas its total requirement is 703 mmcfd.

The gas supplied during 2000-01 on daily average basis was 403 mmcd, which forced Wapda to consume 1.21 million tonnes of furnace oil resulting in additional cost of Rs4.5 billion.

Gas supply situation for Wapda power stations further aggravated during the current fiscal as supply to its various stations from Sui Northern Gas Pipeline Limited (SNGPL) has been reduced drastically since November last.

Wapda chairman complained that the SNGPL supply on daily average basis was 55 mmcfd in November, 15 mmcfd in December and 33 mmcfd in January against the requirement of 243 mmcfd of the whole system.

Similarly, Sui Southern Gas Private Limited (SSGCL) was not supplying sufficient gas to Thermal power Stations Jamshoro and GTPS Kotri. Resulting furnace oil consumption has increased and during January it touched about 0.23 million tonnes costing Rs2.5 billion which according to the WAPDA's chief was highest-ever and alarming too.

He also gave the references of a high level meeting chaired by the President in November in which the President had instructed that the highest priority be accorded to the power sector in supply of gas.

The Wapda chairman has sought the personal intervention of the Petroleum Minister to improve gas supply for the thermal power stations.

Wapda and gas companies were at loggerheads over the payment of outstanding dues, which were pending against the utility since long.

These companies, on several occasions, had threatened to suspend gas supply to thermal power stations due to non-payment of their arrears. The Chief Executive Secretariat however has always come to the rescue of the utility companies.

Coal—a viable energy option

Dewan Muhammad Yousuf Farooqui, Provincial Minister for Industries, Labor and Transport says that the global energy demand is expected to increase by 50 per cent by the year 2020 and a large portion of this demand will be met from Coal.

Worldwide, the primary use of coal is power generation. Today the world gets 38 per cent of its electricity from Coal. By comparison the share of Hydro, Gas and Nuclear sources is 17 per cent each. In the Asian region 45 per cent power is generated from coal. This is expected to increase to 60 per cent by the year 2020.

  • Figures for some selected countries are:

  • South Africa 90 per cent

  • Australia 84 per cent

  • China 80 per cent

  • India 66 per cent

  • Germany 51 per cent

  • USA 56 per cent

Clean coal technologies are making coal more attractive. The New Energy Policy given by the Bush administration includes major funding for development of clean coal technology. The latest technologies being used for making clean coal have made coal no longer a dirty fuel. In view of large reserves the world over; coal will always remain the single largest source of energy for mankind.

Despite having much larger coal deposits approximately estimated at 185 billion metric tons in Pakistan, its use for energy generation is almost negative that is only one per cent as compared to 45 per cent used by other Asian countries for power generation. Instead of using cheaper fuel a large portion of energy is generated by using the costliest fuel that furnace oil.

Additional power demand in Pakistan by the year 2010 is estimated at 9000 MW. In view of the expected growth in economic activity in Pakistan, the electricity demand may further increase in the days to come. Over 99 per cent of Pakistan's coal deposits are located in the province of Sindh. Three major coalfields in Sindh are:

—Lakhra Coal Field in District Dadu with estimated deposits of 1.64 Billion Tons is well developed and ready to maintain the supplies.

—Sonda—Jherruck Coal Field in Thatta District has estimated reserves of 7.3 billion tons.

—Thar Coal Field located in Tharparkar is spread over an area of 9000 square kilometers. Reserves at Thar coalfield are estimated to 175 billion tons. Four blocks in the Thar coal field have been fully investigated. The blocks are spread over an area of 353 sq. kilometers with 9.6 billion tons of coal.

The present government has started a programme for fast track development of coal in the province of Sindh. Recently a Task Force has been set up for Thar coal development under direct supervision of the President of Pakistan. The purpose of the task force is to ensure smooth implementation of coal mining and coal fired power projects. A sizable portion of future power demand will now be met from coal based power generators. The government has also started a coal development programme aimed at development infrastructure in the coalfields. Sindh Coal Authority is actively promoting and helping private investors to set up projects. The process of conversion from oil to coal has been started in the cement industry as well.

Conclusion

The focus of the current energy policy of the government is to assign greater role to the natural gas and coal in power production obviously to cut down huge expenditures on import of oil and to save the hard earned foreign exchange. Enhanced use of locally available natural gas and coal would certainly help producing cheaper electricity in Pakistan. The real impact of this policy would however be fruitful when the benefit is also passed on to the consumers. Currently, the power consumers have no option but to reluctantly pay the price for power consumption that beyond their means and also highest in this region.