GAS SECTOR OF PAKISTAN
May 21 - 27, 2012
The Pakistan's gas sector is one of the six core industries in Pakistan and has very significant forward linkages with the entire economy. Pakistan is growing at 3-4 per cent annually and committed to accelerate the growth momentum in the years to come. This translates into growing energy needs many times in the years to come. According to the annual report of State Bank of Pakistan, there is an emphasized need for wider and more intensive exploration for new finds, more efficient and effective recovery, a more rational and optimally balanced price regime. As a matter of fact, Pakistan is left with only 50 per cent natural gas reserves as high consumption in different sectors has exhausted 50 percent of the overall reserves of 54 trillion cubic feet (tcf) by financial year of 2011-12.
Oil and gas account for over 80 percent of Pakistan's energy consumption and it is unlikely to undergo any significant scaling down of dependence on these fuels in the next 10 to 20 years. Pakistan finds itself at a unique decision point where the country must move from an unacceptably low level of investment and development to a sustainable growth, along with a gross reduction in poverty. This task requires balancing between the use of domestic natural resources and excessively quick depletion of those resources. The key natural resource of the country is natural gas, which serves as the single guaranteed source of energy supply and feedstock for its fertilizer, power, and chemical industry. It is also the single most powerful protection the country's fragile economy has against the extreme swings in energy prices experienced in the world in the new millennium.
The country now has sufficient reserves to last just over 20 years and the country is experiencing some of the worst gas shortages in its history. The impact on textile production is particularly damaging and supply to fertilizer producers was curtailed by up to 20 percent vis-a-vis their allocation. As per a recent report, natural gas was being produced from 98 fields in fiscal year 2010, of which nine fields accounted for 80 per cent of total daily supply.
Natural gas is an important indigenous hydrocarbon resource in Pakistan where it is used as a major fuel for power generation. Moreover, it is also the feedstock and fuel for the production of urea fertilizer and ammonia and the fuel for many industries and commercial establishments whereas it is also an important fuel for cooking.
The major problems and constraints for the energy sector in general and the natural gas sector in particular, if not addressed in a timely and realistic manner, will undermine the government's efforts to achieve the growth targets. The role of natural gas in the country's plan of GDP growth and poverty reduction is undisputable. Major changes and improvements in the sector are needed to fulfill that role. Coordination with other branches of the energy sector and of the economy is needed to establish a redefined base for support of these plans. However, the key goal of delivering a sufficient amount of gas in a reliable manner to meet existing demands contains major challenges.
There are no two opinions that there is a close link between the GDP growth goals and energy consumption expectations. The nearly constant use of gas in fertilizer and power industry is encouraging but the issue is with the supply of gas and not with the demand. There is a shortage of gas in the country that's why distribution of gas between fertilizer and power industry has become an issue these days.
Pakistan is not well served by investing (whether directly through the government or through private or foreign investors) massive resources into gas exploration, production, transmission, and distribution whereas gas is consumed with less than the highest energy efficiency level. It is highly recommended to curtail the growth of gas consumption by domestic and small business, as well as by minor industries through critical review of connection requests. There should be a more efficient and transparent process in handling connection arrangements. It does not mean that every potential user should be supplied with pipeline gas at their facility. Pakistan is one of the few countries where gas for domestic users is supplied through pipeline otherwise gas cylinders are used by domestic consumers worldwide.
The increase in gas demand also requires a new approach to stimulating gas exploration and development. During the last 10 years, not a single serious effort was made in Balochistan because of continuously deteriorating law and order situation.
Exploration and production activity has been largely concentrated in Sindh with 71 per cent of total production and the most recent significant gas discovery dates back to 1998. There is a need to explore new reservoirs in Sindh and Balochistan and major resources must be allocated to gas exploration during the next decade. Moreover, it is equally important to address the issues related to technological advancement of both equipment and trained work force so as to overcome the urgent needs of the Pakistan's gas sector.
The present system of gas transmission is inadequate to serve key market areas of the country. The southern and northern parts of Pakistan need to be supplied through a more robust transmission system. Also, the existing system lacks redundancy and peak load handling capacity. There are currently no compressors operating in the system. Therefore, steady pressure cannot be assured when peak demand occurs. For these reasons, the supply-demand position of natural gas has deteriorated significantly, and shortages of the commodity with reference to indigenous supply are projected to increase to 3,021 mmcfd by FY16 or 48 percent of projected demand.
In short, the gas sector of the country is facing various challenges and their recommended solutions are given below:
Gas exploration, development, and production capacity effort needs a major acceleration and massive capital investment whereas acquisition of knowledge requires increased foreign participation. The government must enable an investment recovery structure, which will attract investment and provide optimal benefit to the country.
Gas use has to be stimulated warranting maximum feasible efficiency in gas energy recovery. The monetization of gas should be optimized to provide maximum long range value to the country. It is recommended that the electric power sector, based on the most modern combined cycle gas turbine technology, becomes the dominant user of natural gas. It is recommended that under the current limited supply and deliver system, priority be given to power sector with maximum energy recovery efficiency. Usage of CNG in cars should be curtailed.
Gas pricing needs to provide requisite assurance to the domestic production and delivery systems of sufficient funds for sustainable growth and reliable service. Pricing is also the most important element towards attracting foreign investment into the market. Any subsidies offered by the government, which is necessary for sociopolitical reasons, must be carried out directly by the government at the location of the delivery-user interface. The gas sector should not participate in social engineering activities.
Losses should be brought to levels consistent with a properly maintained and operated system. As per the result of SNGPL, the unaccounted for gas losses was over 12 per cent last year whereas independent sources claim that the company sustained loss of Rs20 billion every year on account of up to 16 per cent Unaccounted For Gas (UFG). An accountability and reward system should be implemented in a transparent manner. System losses are currently, to a major degree, due to the lack of checks and balances in the system as well as absence of a responsibility-reward method for proper enforcement of gas use, metering and collections. It is recommended that an immediate restructuring of the present system and personalized responsibility-reward of micro-distributions sectors be created.