Gas and Electricity Shortages Hurting Pakistan

[Riaz Haq]

Hagler Bailly, a global management consulting firm with an office in Islamabad, warned in a 2006 study that Pakistan is going to witness gas shortage starting in 2007, and the imbalance will grow every year to cripple the economy by 2025, when shortage will be 11,092 MMCFD (Million standard cubic feet per day) against total 13,259 MMCFD production. The Hagler Bailly report added that Pakistan's gas shortage would get much worse in the next two decades if it did not manage any alternative sources. It appears that we are seeing the beginning of the crisis that HB predicted back in 2006.

Demand for natural gas in Pakistan increased by almost 10 percent annually from 2000-01 to 2007-08, reaching around 3,200m cubic feet per day (MMCFD) last year, against the total production of 3,774 MMCFD, according to Pakistani official sources. But, during 2008-2009, the demand for natural gas exceeded the available supply, with production of 4528 MMCFD gas against demand for 4731 MMCFD, indicating a shortfall of 203 MMCFD. This winter, Sui Northern Gas sources have reportedly told the media that the company is dealing with a shortfall of 700 MMCFD of gas due to increasing use of heaters and geysers.



The potentially devastating effect of the gas shortage on the nation can be gauged by the fact that Pakistanis heavily depend on gas for their energy needs, much more so than neighboring Indians. With a gas pipeline network stretching around 56,400 km, pipeline density of 1044 km/mmscmd (million metric standard cubic meter per day) and a 31,000 km distribution network to serve its domestic and commercial consumers and nearly 3000 CNG stations, the gas consumption in Pakistan is much higher than its bigger South Asian neighbor.

According to International Association of Natural Gas Vehicles, as of December 2008, Pakistan has the world’s highest number of vehicles running on compressed Natural Gas (CNG). The number is 2 million. Pakistan also has the World’s largest number of CNG refueling stations, 2941 as of July 29, 2009.

Just as the worst electricity crisis of its history is currently gripping the nation, it appears that the gas crisis has begun to rear it ugly head, with recurring reports of low gas pressure, CNG station closures and rationing, and gas "load shedding" for businesses and consumers. The blame game has already started and there appears to be little relief in sight on either the electricity or the gas fronts. One of the reported effects of the gas shortage is delay in the availability of power from the rental power plants which are expected to operate on gas. It appears that the attempt to solve the electricity crisis has made life even more difficult for the people by spawning a gas crisis at the same time.

Citizens and industries in Lahore have been particularly badly hit, resulting in angry protests widely reported in the media. The All Pakistan Textile Mills Association (APTMA), the textile industry group, has claimed that it suffered losses of about Rs 1 billion in December due to lack of smooth gas supply to the industry. Pakistan's CNG industry is also feeling the pinch after rapid growth in the last few years.

A story in Pakistani newspaper the News is alleging that "these expensive rental power plants, which were being installed with tall claims to address the energy crises in the country, were said to have now become one of the major reasons behind a new sorts of energy crises in Pakistan, as their gas requirements are bound to hit other sectors of economy running on gas supplies".

In response to the alarming gas situation, there are reports that Pakistan is finally going ahead with the multi-billion dollar Iran-Pakistan Gas Pipe Line Project and has initiated the process of arranging financing of US $1.245 needed for laying 800 Km long pipe line from Pakistan-Iran border to Nawab Shah. Pakistan will also import 1.05 billion cubic feet of gas per day from Iran at 78 percent of crude oil parity price. Pakistan and Iran have already signed Gas Sales Agreement (GSPA) for importing 750 million cubic feet gas per day which will be used to generate 4500 MW of electricity and would be a cheaper alternative to the presently expensive imported furnace oil used in the existing thermal power houses. Another 250 million cubic feet of Gas per day is also envisaged to the purchased for development projects at Gawadar in Balochistan. Considering the magnitude and strategic nature of the Gas Line Project, the government has adopted a private-public partnership approach for financing the project with debt equity ratio of 70:30 under which the Pakistan government will provide 51 per cent equity. This equity financing would be provided upfront through selected Public Sector Entities like OGDCL, Pakistan Petroleum Limited , Government Holding Private Limited, Employees Old Age Benefits Institution and State Life Insurance Corporation. The debt will be sourced from the market backed by the government guarantees for transportation tariff. Any gap in raising the required debt from the market, the funds will be available by PDSP allocations.

As the nation's attention turns to the gravity of the worsening gas energy crisis, the growing supply-demand gap for electricity is still unaddressed. The government's attempts to fill the gap with rental power have raised many questions and drawn serious corruption charges from the opposition parties and the media. Analysts at Center for Research and Security Studies are asking why have some private power producers completely shut down? And why are other private power producers operating well below their full capacity? It is being alleged that the reasons for buying rental power to fill the electricity gap rather than pay the outstanding dues of the independent power producers (IPPs) to fully utilize exiting installed capacity have to do with the kickbacks offered by the rental power operators. According to Reuters, Finance Minister Shaukat Tarin almost resigned after failing to persuade the cabinet against renting, an option he considered expensive and inefficient.

There have been widespread complaints in Islamabad, including by Mr. Tarin, that the government had solutions to improve the power output but was refusing to implement them in order to benefit a handful of power plant operators, such as those supplying rental power, while the IPPs are not being paid for supplying power from currently underutilized installed capacity. Requests for information by Transparency International Pakistan regarding rental power contracts have been ignored by the Ministry of Water and Power. There are widespread corruption allegations against President Asif Ali Zardari personally who has allegedly influenced the award of the 783 MW rental power contracts to a former governor of Oklahoma and his Pakistani partner.

The failures of the last and the current governments in tackling the growing energy crisis in Pakistan are shameful. Inaction at this point would be criminal. The Iran-Pakistan gas pipeline project has to be accelerated to avoid significant further harm to the country. At the same time, the shortages of electricity and gas need to be managed actively and fairly to minimize the impact on the consumers and the businesses to help the economy recover from the current slump. The issue of unpaid electricity bills and the rampant power theft should be confronted head-on to restore investor confidence in long-term energy projects in the country. Since the federal government is the biggest dead beat, followed by the four provincial governments, FATA, the KESC and the KW&SB, it is an opportunity for the current leadership in Islamabad to lead by example by paying off their outstanding utility bills.

Related Links:

Pakistan's Electricity Crisis

Pakistan's Gas Pipeline and Distribution Network

Pakistan's Energy Statistics

China Signs Power Plant Deals in Pakistan

Pakistan Pursues Hydroelectric Projects

Water Scarcity in Pakistan

Energy from Thorium

Comparing US and Pakistani Tax Evasion

Zardari Corruption Probe

Pakistan's Oil and Gas Report 2010

Circular Electricity Debt Problem

International CNG Vehicles Association

[Riaz Haq]

World Bank agrees to fund Dasu Dam in Pakistan, reports Express Tribune:

Following the signing of an agreement with the government of Pakistan for providing $840 million for the 1,410-megawatt Tarbela 4th Extension Project, the World Bank has also agreed to extend financial assistance to the 4,320MW Dasu Hydropower Project.

It has also been agreed that the project will be constructed in phases after work on the 4,500MW Diamer-Bhasha Dam is initiated and its financial plan is finalised.

Water and Power Development Authority (Wapda) Chairman Shakil Durrani stated this while presiding over a meeting here at the Wapda House to discuss the report submitted by an international panel of experts.

Addressing the meeting, the Wapda chairman said international financial institutions were taking keen interest in providing funds for Wapda projects due to excellent ‘economic internal rate of return’ (EIRR) of these schemes.

The Dasu project is part of the least-cost energy production plan of Wapda aimed at harnessing the country’s hydropower resources to improve the share of hydroelectricity in energy mix.

The project will be constructed on the Indus River, seven km upstream of Dasu village and 74 km downstream of Diamer-Bhasha Dam. The project is situated on the Karakoram Highway, about 350 km from Islamabad.

According to a statement issued by Wapda, the priority is to construct Diamer-Bhasha Dam for which land acquisition process has already started and 13 contracts for offices, colonies and roads have been awarded.

Dasu Hydropower Project will follow the initiation of work on Diamer-Bhasha Dam. Detailed engineering design, for which the World Bank is providing funds, and tender documents are likely to be completed in early 2013. Afterwards, construction work will commence.

The project will generate 21.3 billion units of electricity per annum and will also have positive impact on existing hydropower stations including Tarbela, Ghazi Barotha and Chashma.

http://tribune.com.pk/story/397368/world-bank-agrees-to-fund-dasu-h...

[Riaz Haq]

Here's a ET report on additional gas production expected in Pakistan this year:

KARACHI:

Pakistan’s gas crisis – which has forced the shutdown of factories, caused sporadic street protests, and created chaos at CNG pumps – will ease by next winter, says a senior industry executive.

“It cannot get any worse than this,” Asim Murtaza Khan, the managing director of Pakistan Petroleum Limited (PPL), said in an interview with The Express Tribune. “I am not saying that the gas shortfall will decrease, but there will be enough additions to stop the situation from getting uglier,” he stated.

Natural gas is the most-consumed fuel in the country, used to run everything from factories, stoves and cars. The fuel’s demand stands at 6.2 billion cubic feet per day (bcfd) whereas supply comes to just about 4.2 bcfd.

Khan’s optimism relies on untapped resources in mature fields, from where around 100 million cubic feet per day (mmcfd) is expected to be added in the coming months. This addition will come from the Tal, Nashpa, Kunar Paseki Deep and PPL-operated exploration blocks in Sindh, like Serani and Gambat.

However, Khan says that importing gas has become imperative. “There is no way we can meet all the demand from indigenous sources. We must import.”

Expansion problems

Most of the country’s gas is extracted in Sindh, but large tracts of prospective areas remain unexplored in Balochistan and Khyber-Pakhtunkhwa, where petroleum industry officials have been attacked in the past.

In Sui, the country’s oldest and second-largest gas producing field, PPL runs schools and hospitals in the area, and pays soldiers for protecting its installations from insurgent attacks.

“The money that we have put in for corporate social responsibility and security is immense. And yet there is resentment.”

Shale gas policy in offing

PPL, along with Austrian and Italian petroleum companies, is working on a pricing mechanism which will make the exploration of shale gas feasible, Khan said.

“There might be a lot of potential for shale gas, but we don’t have data. The last survey was done in the 1980s. We are trying to compile that data first,” he said.

Last year, PPL engineers drilled out a sample from the Hala Block. The 18-metre long core is being tested by experts in Houston, USA, to examine the potential for shale gas exploration.

Financial woes

PPL is one of the worst-hit victims of inter-corporate circular debt, which continues to bog down the energy supply chain of the country.

“We have around $300-350 million stuck in debt. Imagine what we could have done with that money. It would have spurred exploration activity,” Khan said.

With government being its largest shareholder, PPL is also obliged to pay out cash dividends on a regular basis – something that has to be stopped once the company starts hitting oil and gas discoveries.

“Shareholders should be prepared, because we would need cash to start production. Normally, $200 million are spent on the development of field alone,” he said.

“We have enough cash to finance exploration activities right now. The stage where cash dividends might possibly have to be cut could come in the next two years.”

Offshore expedition

A consortium of comprising PPL, the Oil and Gas Development Company and ENI will start drilling for petroleum reserves in the Arabian Sea next year. Exploration in Block G of the Indus delta comes on the heels of successive prospecting failures in the area, which remains one of the least-explored offshore regions.

“Offshore investment is an expensive proposition,” explains Khan, acknowledging the scepticism. “But at least we are getting the data. The geology and depth of the offshore basin makes it very difficult to prospect there. However, it doesn’t mean we should give up.”...

http://tribune.com.pk/story/495106/notes-from-the-industry-one-more...

[Riaz Haq]

Here's an FT report on Iran-Pakistan gas pipeline:

...Asif Ali Zardari, Pakistan’s president, unexpectedly cancelled a trip to Iran at the last minute in December, amid concerns in Islamabad over stiff US opposition to a project considered essential for tackling mounting energy shortages. Some Pakistani officials had expected Mr Zardari to consent to the project during the trip.

The plan would see Pakistan build a pipeline connecting its national gas supply grid in the southern Sindh province to the Iranian border in southwest Baluchistan. Iranian officials say they have already built the pipeline on their side of the border to within 100km of Pakistan.

The US has opposed the pipeline on the grounds it would inject foreign exchange into the Iranian economy at a time when western countries have imposed a number of ever tighter sanctions in an effort to prevent Tehran from advancing its nuclear weapons programme.

Independent economists said it was too early to predict whether the project would go ahead. “The companies involved from Pakistan may face the danger of being exposed to US-led western sanctions,” warned Sakib Sherani, an economist. “There are also technical issues in undertaking such a large project.”

However, Islamabad has become all too aware of the political and economic risks posed by chronic electricity shortages after people took to the streets in cities across the country last summer in protest at power cuts up to 20 hours long.

Pakistan appeared confident the US would not hit it with tough sanctions, according to a senior western diplomat in Islamabad. “In their [Pakistan’s] calculus, they believe that the US needs Pakistan to ensure a successful drawdown from Afghanistan by December next year,” the diplomat said.

“The Pakistanis probably believe there will be a lot of huff and puff but no painful sanctions. In all honesty, Pakistan has a terrible situation on energy and these [energy] shortages can undermine the country’s stability.”

Iran has offered its neighbour at least $500m to help finance the project. The money was “just the beginning”, the Pakistani official said. “The Iranians have said they will provide more funding for this project if there is a need.”

The Iranian pipeline offers Pakistan the shortest supply route from any gas surplus country, officials say. Asim Hussain, chief adviser on oil and natural resources to the government, told the FT last December: “It’s a feasible project for Pakistan. It’s the quickest route, the cheapest route where we can fulfil our energy needs.”

http://www.ft.com/intl/cms/s/0/3a2abb18-6bbe-11e2-a700-00144feab49a...

[Riaz Haq]

Here's a PakistanToday report on PEW, an economic think tank often critical of PPP-led coalition, welcoming govt steps to revive economy:

ISLAMABAD - The Pakistan Economy Watch (PEW) on Thursday said recent steps taken by the government, including the ratification of the Iran pipeline agreement and handing over the Gawadar Port to a Chinese firm seemed highly promising.
These steps will go a long way in reviving the economy which is in tailspin, said PEW President Dr Murtaza Mughal.
He said that Chinese cooperation in the pipeline project would turn it into a reality in less than the expected time, which would be a great service to the country and the people who have been reeling under the energy crisis. Mughal lauded Tehran’s patience as the project had been delayed for a long time due to US pressure.
Allowing the transfer of concession agreement for Gawadar Port from the Port of Singapore Authority to the China Overseas Port Holding will attract investment, provide opportunities to the people of Balochistan and bring Islamabad and Beijing closer, he said.
He said the announcement of the three-year Strategic Trade Policy Framework, in which an export target of $95 billion had been set, and backed by steps to support the plan, would help improve confidence in the business community. The government should ensure that this trade policy does not meet the fate of the trade policy framework for 2009-12, which had failed due to want of funds, he added.
The ministry of water and power’s plan to generate 3,000MW electricity from sugarcane bagasse on a fast track basis is equally encouraging, he observed. He said all necessary amendments in existing policies should be ensured to attract investment to make this possible.
Lauding US assistance for water and power projects and optimum use of hydropower resources, Mughal said the US should stop opposing the Iran gas pipeline project otherwise an anti-US feeling will run high among the masses.

http://www.pakistantoday.com.pk/2013/02/01/city/islamabad/steps-for...

[Riaz Haq]

Here's a report on Iran-Pak gas pipeline deal by AEI, a conservative American think tank:

On January 30, Pakistan’s cabinet ratified a $1.5 billion agreement with Iran for the laying of nearly 500 miles of pipeline in Pakistan that would connect the country’s gas infrastructure to Iran’s massive South Pars natural gas fields. The pipeline would potentially add over 750 million cubic feet of gas per day to Pakistan’s grid at a time when the country faces crippling energy shortages with some cities suffering frequent protests against 20 hour-long power outages.

Iran offered cash-strapped Pakistan over $500 million in financing to lay the Pakistani section of the pipeline after several private and sovereign foreign entities backed out of the plan over fears of incurring U.S. ire for participating in the project (and when Pakistan refused to award contracts to some without bidding). The Iranians have offered even more funding if the Pakistanis demonstrate seriousness in going ahead with and completing the project. Pakistan, in return, has offered the contract for the construction of the Pakistani segment of the pipeline to an Iranian company called Tadbir Energy (Iran has already largely completed its section).

Tadbir Energy is an Iranian firm that “isn’t sanctioned by any foreign government,” and in July 2012, it made a bid to take over the failing Petit-Couronne refinery in France. The Iranian firm, however, is a subsidiary of the Headquarters for Implementing the Imam’s Directive (HIID), also known as the Imam Khomeini Foundation, an investment firm linked to Iran’s Office of the Supreme Leader. The European Union sanctioned the president of HIID, Mohammad Mokhber, in 2010 for his involvement in Iranian “nuclear or ballistic missiles activities.” Mokhber is also a member of the Sina Bank board of directors, sanctioned by the European Union for its close ties to the Office of the Supreme Leader.

It will be important to watch whether the conclusion of the pipeline agreement leads to further cracks in the U.S.-Pakistan relationship, especially at a time when the U.S. appears to be looking to Pakistan to help facilitate reconciliation in Afghanistan as the U.S. continues to draw down troops from the country. Former Secretary of State Hillary Clinton warned in March 2012 that “beginning the construction of [the] pipeline, either as an Iranian project or as a joint project, would violate [U.S.] Iran sanctions law.” For a time, it appeared as if Pakistan was sensitive to U.S. concerns over Iran and gave some indications that it may scrap or indefinitely delay the pipeline project due to U.S. objections. Pakistan appears now to have calculated that its short-term energy needs are too great, and the threat of U.S. sanctions not strong enough, for it to forgo the deal.

It will also be important to monitor whether Pakistan’s decision to cut a deal with the Iranians has a significant impact on loosening western sanctions on Iran and what sanctions or other fallout, if any, it may face for spurning U.S. entreaties vis-à-vis Iran and engaging with an Iranian company closely linked to already-sanctioned entities.

http://www.criticalthreats.org/pakistan/jan-fulton-iran-pakistan-pi...

[Riaz Haq]

Here's ET piece on energy-hungry South Asia looking to energy-rich Central Asia:

.Kazakhstan, Turkmenistan, Uzbekistan, Kyrgyzstan and Tajikistan are all rich in oil and gas. According to available data, they have a combined 8.2 billion tons of proven oil reserves and 8.4 trillion cubic metres of natural gas reserves.

On the other side, South Asia faces a deficit in energy, rapidly picking up on economic growth. Connecting South Asian energy consumption centres to energy-rich Central Asian states is a win-win solution. It can bring economic growth to Central Asia through oil and gas revenues, and it can help South Asia continue on the path of stable economic growth and prepare the subcontinent as a future consumption market, which can support trade needed to sustain G-8 countries at the present level.---------

At the moment, three principal gas pipelines can bring gas to the subcontinent. These are the Turkmenistan-Afghanistan-Pakistan-India gas pipeline (TAPI), the Qatar-Pakistan-India (QPI) submarine gas pipeline, and the Iran-Pakistan-India (IPI) gas pipeline. The QPI, for a considerable portion, has to be laid down in the seabed of the Arabian Sea. The option, at present, is too expensive to be adopted. Even after completion, its estimated annual maintenance cost is a considerable portion of the profit margin, and the host consortium may not find it feasible to run.

A Memorandum of Understanding (MoU) was signed on March 15, 1995, between Turkmenistan and Pakistan to build a gas pipeline from the Daulatabad gas field in Turkmenistan to Multan in southern Punjab. US company Unocal, in consort with Saudi oil company Delta, prepared to start work on the project. The two companies later joined the CentGas consortium in which several international petroleum companies joined in, including Russian petroleum giant Gazprom.

Later on, in June 1998, Gazprom relinquished its share in the project, while Unocal withdrew in August 1998 after attacks on American Embassies in Nairobi and Darussalam. The project was then put on the backburner.

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The $7.6 billion pipeline, with initial capacity of 27 billion cubic metres of natural gas per year, will deliver 2 billion cubic metres of gas to Afghanistan and 12.5 billion cubic metres each to Pakistan and India.

IPI

The proposed pipeline was designed to bring gas to Pakistan and India. The pipeline can initially supply 22 billion cubic metres of natural gas per year, which was expected to be raised later to 55 billion cubic metres per year. The project was supposed to be commissioned by 2013 (this year) at a cost of $7.5 billion. After reaching Multan, a spur line had been proposed, which would deliver gas to India. Under the gas purchase agreement, Pakistan was supposed to get gas at a price of $11 per million British thermal units (MMBTU). The price is $2 per MMBTU cheaper than the TAPI pipeline gas, which costs $13 per MMBTU. The Iranian gas is also $7 per MMBTU cheaper than imported LNG.

In 2008, after signing a civilian nuclear deal with the US, India withdrew from the project.

Pakistan’s federal government in January this year has approved a $1.5 billion government-to-government deal with Iran for laying the 785-kilometre segment of the pipeline in Pakistan. The federal cabinet has finally approved the project, and a special committee has been formed to expedite it. The US has been quick to register its concerns over the deal.

South Asian consumption

In Pakistan per capita natural gas consumption in 2010 was 229 cubic metres, whereas in India this is as low as 55 cubic metres..

http://tribune.com.pk/story/529170/the-energy-supply-conundrum-inte...

[Riaz Haq]

Here are excerpts of Pepe Escobar's RT.com Op Ed on Iran-Pakistan pipeline:

..When Iranian President Mahmoud Ahmadinejad and Pakistani President Asif Zardari met at the Iranian port of Chabahar in early March, that was a long way after IP was first considered in 1994 – then as Iran-Pakistan-India (IPI), also known as the 'peace pipeline.' Subsequent pressure by both Bush administrations was so overwhelming that India abandoned the idea in 2009.

IP is what the Chinese call a win-win deal. The Iranian stretch is already finished. Aware of Islamabad’s immense cash flow problems, Tehran is loaning it $500 million, and Islamabad will come up with $1 billion to finish the Pakistani section. It’s enlightening to note that Tehran only agreed to the loan after Islamabad certified it won’t back out (unlike India) under Washington pressure.

IP, as a key umbilical (steel) cord, makes a mockery of the artificial – US-encouraged – Sunni-Shia divide. Tehran needs the windfall, and the enhanced influence in South Asia. Ahmadinejad even cracked that “with natural gas, you cannot make atomic bombs.”

Zardari, for his part, boosted his profile ahead of Pakistan’s elections on May 11. With IP pumping 750 million cubic feet of natural gas into the Pakistani economy everyday, power cuts will fade, and factories won’t close. Pakistan has no oil. It may have huge potential for solar and wind energy, but no investment capital and knowhow to develop them.

Politically, snubbing Washington is a certified hit all across Pakistan, especially after the territorial invasion linked to the 2011 targeted assassination of Bin Laden, plus Obama and the CIA’s non-stop drone wars in the tribal areas.

Moreover, Islamabad will need close cooperation with Tehran to assert a measure of control of Afghanistan after 2014. Otherwise an India-Iran alliance will be in the driver’s seat.

Washington’s suggestion of a Plan B amounted to vague promises to help building hydroelectric dams; and yet another push for that ultimate 'Pipelineistan' desert mirage – the which has existed only on paper since the Bill Clinton era.

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The big winner is… China

IP is already a star protagonist of the New Silk Road(s) – the real thing, not a figment of Hillary Clinton’s imagination. And then there’s the ultra-juicy, strategic Gwadar question.

Islamabad decided not only to hand over operational control of the Arabian Sea port of Gwadar, in ultra-sensitive southwest Balochistan, to China; crucially, Islamabad and Beijing also signed a deal to build a $4 billion, 400,000 barrels-a-day oil refinery, the largest in Pakistan.

Gwadar, a deepwater port, was built by China, but until recently, the port's administration was Singaporean.

The long-term Chinese master plan is a beauty. The next step after the oil refinery would be to lay out an oil pipeline from Gwadar to Xinjiang, parallel to the Karakoram highway, thus configuring Gwadar as a key Pipelineistan node distributing Persian Gulf oil and gas to Western China – and finally escaping Beijing’s Hormuz dilemma.

Gwadar, strategically located at the confluence of Southwest and South Asia, with Central Asia not that far, is bound to finally emerge as an oil and gas hub and petrochemical center – with Pakistan as a crucial energy corridor linking Iran with China. All that, of course, assuming that the CIA does not set Balochistan on fire.

The inevitable short-term result anyway is that Washington’s sanctions obsession is about to be put to rest at the bottom of the Arabian Sea, not far from Osama bin Laden’s corpse. And with IP probably becoming IPC – with the addition of China – India may even wake up, smell the gas, and try to revive the initial IPI idea....

http://rt.com/op-edge/iran-pakistan-syria-pipeline-843/

[Riaz Haq]

Sharifs using friends as middlemen?

The politics related to liquefied natural gas (LNG) import have again intensified after Pakistan State Oil (PSO) cancelled an import tender in which top global companies like British Petroleum and Shell could have taken part.
Similarly, many tenders were scrapped in the past, but this time experts were hoping for clinching a deal following encouraging response from renowned companies. But the same old episode has been repeated again.

Punjab Chief Minister Shahbaz Sharif and Petroleum and Natural Resources Minister Shahid Khaqan Abbasi left for Qatar, which could be a major source of LNG supply, soon after the PSO tender was cancelled.
This has sparked speculation that the government has already planned to strike an import deal with Doha in a government-to-government contract through one of Prime Minister Nawaz Sharif’s close cronies, who has been residing in the Gulf Arab state for a long time.
During the previous government of Pakistan Peoples Party (PPP), some ministers had reportedly alleged that the man had blocked a gas deal between Pakistan and Qatar. Despite signing of a memorandum of understanding (MoU) between the two countries, Doha at that time did not push ahead with the gas export programme.
Speaking at a public rally, Awami Muslim League President Sheikh Rasheed Ahmed has also accused the PML-N government of favouring some blue-eyed boys in Qatar through a state-to-state LNG contract with Qatar Gas. He said the government was going to strike the LNG deal with Qatar through one of premier’s cronies, Saifur Rehman, who is residing in Doha.
He also pointed out that the government seemed to be in a hurry as it had assigned the special task of finalising an agreement to Pakistan’s ambassador-designate to Qatar.
These speculations seem to be spreading after the chief minister of Punjab went to Doha and met top officials. Then the minister of petroleum joined him.
This suggests two important things. First, the chief minister has a key role in reaching an LNG deal with Qatar and second, the government has made up its mind for an agreement with Qatar and PSO’s tender was mere eyewash.
However, with these developments, Pakistan is going to lose the opportunity of importing LNG at a competitive price. Now, the ball is in Doha’s court and it can demand a price of its choice.

During the previous PPP government, Qatar had revised downwards the LNG price offer to $17.437 per million British thermal units (mmbtu), a 0.5% discount over the previous price of $18.002. This would have led to savings of $1 billion over the 20-year lifetime of the project.
If all charges are included, LNG supplies from Qatar will cost $19.521 per mmbtu and Pakistan will have to spend $200 million on developing infrastructure for handling imports.
Another tender
Separately, in response to a tender floated by Sui Southern Gas Company (SSGC) for an LNG integrated project, Pakistan Gas Port had offered a bid of $17.7074 per mmbtu while Global Energy International quoted a price of $18.16 per mmbtu.
According to officials, if the government had awarded the contract to the lowest bidder, the price would have stood at $10 per mmbtu following a sharp fall in oil prices in the world market. These prices were even lower than the revised price quoted by Qatar.

http://tribune.com.pk/story/803153/energy-trade-after-scrapping-of-...

[Riaz Haq]

From Wall Street Journal: "Pakistan Close to Agreement With Qatar Over LNG Supplies for Power Plants"

ISLAMABAD—Pakistan is close to striking a long-term deal worth potentially $22.5 billion or more to import liquefied natural gas to help fuel the country’s power stations and ease its crippling electricity crisis, Pakistan’s top energy official said.

“We are negotiating with Qatar and a few other sources,” said Pakistani Petroleum Minister Shahid Khaqan Abbasi in an interview with The Wall Street Journal. “The deal will be very competitive and very beneficial for Pakistan.”

An agreement with Qatar is expected by early March, Pakistani officials say.

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The deal with Qatar would provide supplies over 15 years, Pakistani officials say. Pakistan is looking to import 3 million tons of LNG a year, beginning this year, with much or all of that coming from Qatar.


The country’s overall LNG imports are expected to rise to around 7 million tons annually within three years. It isn’t clear as yet how much of that higher total would be provided by Qatar.

Importing 3 million tons of LNG would cost around $1.5 billion annually, or some $22.5 billion over 15 years, given current global oil and gas prices, analysts say. That cost will fluctuate with the price of oil, which is also used to price LNG.

The Pakistani conglomerate Engro has built a terminal to import LNG at Port Qasim, on the edge of the southern city of Karachi, set to become operational at the end of March, officials say. Bidding is now under way to construct a second LNG terminal at Port Qasim.

Pakistani officials have been negotiating for months with state-owned Qatar Gas. The government of Qatar and Qatar Gas didn’t respond to requests for comment.

Pakistan’s electricity crisis has been caused partly by its reliance on importing furnace oil and diesel to fire its power stations, both relatively expensive fuels that will be replaced by the LNG. “LNG is more efficient and cleaner for the environment than the alternatives,” Mr. Abbasi said. “This is a major shift in our energy mix.”

According to Mr. Abbasi, LNG imports of 3 million tons would yield cost savings worth an annual $300 million. By using LNG, Pakistan will be able to between 7% and 9% more power, as a result of its greater efficiency and by bringing currently dormant gas-fired power stations back to work, Mr. Abbasi said.

Pakistan’s electricity shortage results from a failure to build power stations to keep pace with demand, a dependence on burning relatively expensive fuels and the swelling of debt in the sector that has led to some plants being shut down.

The deal would mark the first time that Pakistan will import natural gas. It would be the biggest financial commitment made by Pakistan to date, analysts say.

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“This would be a positive development for Pakistan’s energy security. Qatar is a reliable and credible supplier,” said Anthony Livanios, head of oil and gas consultancy Energy Stream CMG. “For Qatar, this will help it diversify its customer base. So it’s a win-win situation for both countries.”

Qatar is the world’s biggest producer and exporter of LNG.

Pakistan is also considering shorter-term deals and open-market transactions to source some of its LNG needs from other countries, including Brunei, Malaysia and China, which isn’t a producer but may have excess imports that it can resell.

Nicholas Browne, a senior manager at Wood Mackenzie, an oil and gas consultancy, said typical pricing for Qatari LNG would be 14% to 15% of the price of oil. At 14%, Pakistan would be acquiring the fuel at $7 per million BTU, an attractive price, said Mr. Browne.

“From a buyer’s perspective, it is a great time to be in the market for LNG, in terms of both price and availability,” said Mr. Browne, because the price of oil has fallen and there is a substantial increase in supply expected in the next couple of years, as Australia and the U.S. bring new output onto the market.

http://www.wsj.com/articles/pakistan-close-to-deal-for-lng-supplies... 

[Riaz Haq]

According to Mr. Abbasi, LNG imports of 3 million tons would yield cost savings worth an annual $300 million. By using LNG, Pakistan will be able to between 7% and 9% more power, as a result of its greater efficiency and by bringing currently dormant gas-fired power stations back to work, Mr. Abbasi said.

Pakistan’s electricity shortage results from a failure to build power stations to keep pace with demand, a dependence on burning relatively expensive fuels and the swelling of debt in the sector that has led to some plants being shut down.

The deal would mark the first time that Pakistan will import natural gas. It would be the biggest financial commitment made by Pakistan to date, analysts say.

Pakistan has depended on its own natural gas fields, which have started being depleted in recent years. Longer-term plans are in the works to build pipelines to import gas from Iran and Turkmenistan.

Qatar is the world’s biggest producer and exporter of LNG.

Pakistan is also considering shorter-term deals and open-market transactions to source some of its LNG needs from other countries, including Brunei, Malaysia and China, which isn’t a producer but may have excess imports that it can resell.

Nicholas Browne, a senior manager at Wood Mackenzie, an oil and gas consultancy, said typical pricing for Qatari LNG would be 14% to 15% of the price of oil. At 14%, Pakistan would be acquiring the fuel at $7 per million BTU, an attractive price, said Mr. Browne.

“From a buyer’s perspective, it is a great time to be in the market for LNG, in terms of both price and availability,” said Mr. Browne, because the price of oil has fallen and there is a substantial increase in supply expected in the next couple of years, as Australia and the U.S. bring new output onto the market.

Mr. Browne said Qatar may also have strategic reasons for supplying Pakistan. The tiny Gulf state has run a highly ambitious foreign policy in recent years, seeking influence across the Muslim world.

Under Pakistan’s plans for the LNG, the fuel would eventually fire generation of 3,600 megawatts of power, equivalent to around a quarter of the country’s current electricity output. Pakistan also plans to build coal-fired power stations.

Michael Stoppard, head of gas at consultancy IHS, said that LNG offered environmental advantages, but “coal is hard to beat on the economics.”

http://www.wsj.com/articles/pakistan-close-to-deal-for-lng-supplies...