THE ENERGY SECTOR-2005

Energy would be a driving force to lead international instability or conflicts in the coming years

By Ashraf Khan
Aug 08 - 14, 2005

Economists warn about the consequences for the global economy of oil prices rising. The price is over $60 and gloomy industry analysts are speculating on it hitting $100. The driving forces behind current rising prices, however, are not those that prompted the increase of 1999-2000.

The main factor pushing prices up today is soaring demand, not producer constraints on oil output. Without a determined global conservation effort, the threats of an economic crash and growing friction - both between consumer states and between consumers and producers - are bound to be fundamental elements of international relations over the coming years.

Expanding oil production to meet demand is not a solution, and would only ease the shortfall temporarily: reserves are being depleted three times faster than new oil sources are being discovered, and most older, more easily exploited fields have passed their peak output. The problem was bound to arise sooner or later: oil is finite, and so is human prudence when it comes to taking care of the future. It arises now in an acute form because of sharply rising energy consumption in developing countries, particularly China and India. China alone accounted for a third of extra global demand in 2004. According to the International Energy Agency, China's oil consumption is expected to grow to over 10 million barrels a day over the next 15 years, and India's by 30 percent in coming years.

It is squarely believed that energy is an imminent fuel for the economy. The consumption of energy is one of the critical indicators of the level of development of any country. Developed countries use more energy per unit of economic output and far more energy per capita than developing countries.

Energy use per unit of output does seem to decline over time in the more advanced stages of industrialization, reflecting the adoption of increasingly more efficient technologies for energy production and utilization as well as changes in the composition of economic activity. At present, over a billion people in the industrialized countries use some 60 percent of the world's commercial energy supply, while 5 billion people living in the developing countries consume the remaining - a large number of them are poor. It is estimated that about two billion people around the world have access to modern energy services and as a result, struggle to meet their basic daily needs.

PAKISTAN'S ENERGY SCENARIO

Energy sector in Pakistan comprises power, gas, petroleum and coal. The total primary energy supplies measured in terms of tones of oil equivalent (toe) stood at 50.8 million tonnes equivalent of energy (toe) in 2003-04. The primary energy supplies have been rising steadily over the last several years. It was 45.2 million toe in 2001-02, increased by 4.4 percent in 2002-03 and further grew by 8 percent in 2003-04 to stand at 50.8 million toe. Oil, natural gas, electricity, coal and LPG 29.9 percent, 49.7 percent, 13.5 percent, 6.5 percent and 0.4 percent, respectively, to primary energy supplies in 2003-04 (see Fig-1 for detail). Oil and gas drilling activity remained slow in 2003-04 as compared to 2002-03 and accordingly, 29 exploratory wells and 24 development wells were drilled in 2003-04 as against 32 and 45 drilled in 2002-03. In 2003-04 11 new discoveries including 4 oil and 7 gas/condensates were made. Average oil production dropped from 64,268 barrels per day in 2002-03 to 61,817 barrels per day in 2003-04, while natural gas production increased to an annual average of 3,295 million cubic feet per day from 2,719 million cubic feet per day in 2002-03, showing an increase of 21.2 percent.

The government is putting efforts to attract local and foreign investors and as a result of these financial and structural reforms, the energy sector has already emerged as one of the most attractive sectors in the country. Recently, Pakistan has signed six agreements for US$ 42 million with various international companies to carry out exploration activities in the oil and gas sector.

STRATEGY TO COPE UP DEMAND

Economic growth is the key to changing this situation, and for economic growth we need energy. Pakistan's economy is witnessing a visible and crucial structural shift since 1999- 2000. The real GDP growth is accelerating over the last three years - rising from 5.1 percent in 2002-03 to 6.4 percent in 2003- 04 and further to 8.35 percent in 2004-05. Over the next five years, 7-8 percent growth per annum is targeted to be sustained which will demand a commensurate rise in the energy use. In order to sustain growth momentum, rise in levels of income, and increased availability of goods and services have to be assured. Pakistan needs an integrated National Energy Plan not only to increase the supply but also to conserve energy with efficient technologies. The per capita energy consumption in Pakistan is currently low at 14 MBtu as compared to 92 MBtu for Malaysia and 34 MBtu for China. Efforts are on to ensure the development of energy resources to contribute to the nation's development.

The government's own statistics reflect declining exploration activities at home, which has already been historically low compared to standard rate of hydrocarbon exploration in the world. During July-March 2004-05 a total of 34 wells have been drilled including 13 wells in public sector as against 35 in the same period last year. This speaks volume of the negligible hydrocarbon exploration activities as a desirable rate of exploration stands 100 exploratory wells as per 10,000 square kilometers concession.

In the past five years, the country has increased its dependency on gas instead of oil. This growing dependency is going to place Pakistan along with India and China, the two largest energy-starved countries in near future.

A contrast in the energy basket of India and Pakistan is visible. And this very contrast provides the basis of tapping energy sources from across the borders.

In Indian energy basket gas accounts for mere seven percent whereas it draws 45 percent energy from its huge coal reservoirs. Story is different here. Pakistani energy consumption trend shows that it energises industries, commercial and domestic needs through gas whose share is 50 percent. Coal consumption is negligible, though a huge but still unexplored reserves lying under the Thar deserts.

The coalfield in Sindh province has reserves of 175 billion tonnes. Due to import of high cost energy resources, government has decided to enhance the share of coal in the overall energy mix from present five percent to 18 percent up to 2018. Almost 80 percent of cement industry has now switched over to indigenous coal from furnace oil that has saved considerably foreign exchange which was being spent on the import of furnace oil. But, power generation accounts for 70 percent 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. China as well producing 50 percent of its electricity through coal-fired thermal power stations. It certainly nauseates a sincere citizen as to why the authorities are not able to bring this precious stone out of quarries to be burnt into power station on large blast furnaces. The situation typically offers the 17th century situation when England first found coal deposit but had no technology to develop the mines and lagged behind from France in industrial advancement.

TRANS-BORDER GAS PIPELINES

Both Pakistan and India attach high hopes with sourcing of energy from Iran, and Turkmenistan or Qatar. India plans to enhance gas consumption in its energy mix to 20 percent from present five percent in coming 20 years. Once a pipeline project is commissioned, India would be importing 200-mmcfd gas, despite the Bay of Bengal may emerge as the second North Sea, in terms of oil and gas reserves. On the other side Pakistan's gas production, which cater for the 50 percent of the present energy needs, is going to be peaked in coming years. Thus the production of gas would start receding fast prompting demand running faster than supplies. In 2010, it would become imminent for Pakistan to import gas in view of exhausting gas deposits at home which size 30.13 trillion cubic feet now. By the year 2010, Pakistan's gas import needs would be 300 mmcfd whereas Indian needs would stand around 200 mmcfd. The cumulative import needs of 500 mmcfd would make the two countries the largest buyer of natural gases in the world- a phenomenal fact, no exporting country can take it for granted.

This would be the biggest strength as well as the weakness at the same time of the two countries.

This has been encouraging to see diplomatic and political efforts going on among the three countries i.e. Iran, Pakistan, and India, despite overt resentment by the US.

John Gee, a writer for Energy Bulletin, states: These moves create difficulties for Washington's present policies in the Middle East. The Bush administration sees the warming of its relations with India as a very positive development, while, despite a temporary rapprochement following 9/11, treating China as a threat to be contained. It is rather difficult for the White House to signal criticism of China's involvement in Sudan (bodies such as the Heritage Foundation are more direct) and ignore the parallel Indian role. The administration's displeasure at China's opposition to any threat of the use of force against Iran over its nuclear program has been made plain. China's attitude has been ascribed to its need for Iranian oil and gas, but Beijing's attitude differs little from that of Washington's allies in Europe, with which the White House does not want to damage relations following the bruising falling out over Iraq.

The big losers from the energy shortage are likely to be the world's poor nations. Between them, the U.S., Western Europe and Japan - the old industrial centers - and the rising economies of Asia are driving up prices to levels that most of sub-Saharan Africa and countries such as Yemen and Bangladesh will not be able to afford.

It becomes obvious that energy would be a driving force to lead international instability or conflicts in the coming years. This has been a gigantic challenge for Islamabad, whose current focus is on strengthening its role in war against terror. (ashrfkhan1@gmail.com)