COMPENSATING FAST DEPLETING GAS RESERVES

ALL OPTIONS FROM EXPLORATION TO IMPORT NEED TO BE AVAILED

SHABBIR H. KAZMI
May 11 - 17, 2009

Huge local reserves of natural gas have been meeting bulk of energy demand in Pakistan for decades. However, indiscriminate use of gas and slower process of new discoveries have necessitated its import. While the country has the option to import gas as LNG or through pipelines, it has to accelerate exploration and production activities to remain self sufficient in indigenous production of natural gas.

Pakistan is grossly dependent on imported crude oil and finished POL products that constitute bulk of the country's import bill. Adding gas to the import list would further add to the burden. To compensate this, the country has to earn foreign exchange by becoming energy corridor. Construction of Iran-Pakistan-India (IPI) and Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipelines can ensure gas supply to India but China can also be included in the projects.

Ironically, presence of India in both the gas pipeline projects has delayed implementation of IPI for nearly a decade. While India has been raising many objections, including security of the pipelines passing through Pakistan, it has very cleverly concluded strategically important agreements, one for the supply of nuclear power generation technology with the US and two separate contracts for the import of LNG from Qatar and Iran. It was only lately that Iran and Pakistan realized they needed to go ahead with the pipeline project without India. Now the two countries have to complete the project at a faster pace to let their dream come true.

Pakistan has committed two strategic mistakes: one was by continuing negotiation with India on IPI pipeline originating from Iran. It should have realized much earlier that by lingering on the discussion India was trying to put Pakistan at disadvantageous position, as it has in the mean time secured supply of gas through LNG import. Second, Pakistan also failed in securing LNG import contract.

Analysts are also of the view that Turkmenistan-Afghanistan-Pakistan-India pipeline may also not be realized due to ongoing civil war in Afghanistan. It is also to be realized the US is the key sponsor of this project and virtually has control of gas reserves of the Central Asian Countries. However, this pipeline comes very low on the priority list of the US as it is very keen to get control the gas supply to Europe.

Before Pakistan decides to go ahead with any of the pipeline projects or LNG import, it is necessary to understand the fast changing US priorities in the region. Having got virtual control on the fossil reserves of the Middle East and Central Asia, it is now trying to acquire control on the transportation of energy products. Therefore, both the pipeline projects do not fit in the new US strategy. In order to secure the supplies, Pakistan will have to take some strategic decisions at the earliest and without involving India.

The limited supply of energy products, oil and gas, has become a stumbling block for Pakistan. Over the last two years consumers have to endure long hours of electricity and gas load shedding. This winter the life was virtually at halt due to extensive load shedding of electricity as well as gas. Industries have to face double-edged sword, as they got neither electricity nor gas. Even CNG stations have to be closed down to ensure supply of gas to the domestic consumers.

In all sincerity, Pakistan should put its LNG project on top priority as it has already been delayed for more than three years at least. While the crude oil prices are low and demand is sluggish, the situation offers Pakistan an opportunity to tie up LNG supply contracts. At present international financial institutions are also willing to extend soft-term loans.

Some of the critics are of the opinion that Pakistan should opt for only one project either LNG or pipeline. Their primary concern of mobilizing capital for both the projects would not be an easy task. It appears that they are not fully aware of the importance of both the projects. Each has its own plus points but implementing both the projects simultaneously will help in realizing the dream of making Pakistan the energy corridor. Since the US is opposing Iranian pipeline project, Pakistan should approach China and make it a partner in the projects.

One of the things, which Pakistani has to learn and follow, is optimizing gas use. According to an old saying, burning gas in power generation is like burning dollars. The nation has to stop using gas for power generation as early as possible. If cement sector can switch over from gas and furnace oil to coal, why cannot be electricity produced from other alternative sources? The rationalization that use of gas in power generation can help in containing cost of generation is only a myth. Unless electric utilities reduce their transmission and distribution loss (mostly comprising of theft) all cost saving measures will remain fruitless.

Some of the gas fields do not produce 'pipeline quality' gas. This includes the oldest field Mari. The government dedicated this field for fertilizer industry in 2001, but not stopped supplying gas from this field to one of WAPDA's thermal power plants. On top of this, pipeline quality gas from Qadirpur field has been allocated for Engro's expansion project, which is waste of resource also.

Along with expeditious construction of LNG terminal, gas-marketing companies should be asked to improve their transmission and distribution infrastructure. With the increasing number of CNG stations complaints of low pressure have become common. Since profit of gas marketing companies is linked with their operating assets, mobilizing funds should not be an issue.

Although the government has cleared a significant portion of circular debt, the remaining amount must also be released immediately. Efforts should also be made to ensure that problem does not arise in future.