Gas shortages and prospects

Gas shortages in recent years account for gas load management programmes that prioritise its use between competing buyers. Major buyers of gas in the country are domestic consumers as well as CNG stations (the two most vocal groups quick to come out on the streets in protest against gas load shedding/outages), industrial sector (with the fertiliser industry a major purchaser) and the power sector.
The power crisis in the country has reached alarming proportions due mainly to the failure of the government to eliminate the inter-circular debt that is the root cause of debilitating liquidity issues which, in turn, continue to compromise the ability of the sector to operate at even 50 percent capacity. The heatwave and Ramazan have further fuelled public anger and brought many out on the streets of the country which may be one major reason why periodic instructions by the cabinet to the two gas suppliers include diverting gas from industry to the power sector or for domestic use.
The fertiliser subsector requires gas for production and in case of gas outages the sector is unable to meet domestic demand necessitating imports, which this foreign exchange scarce country can ill afford at the present juncture. Fertiliser sector, as per the Economic Survey 2011-12, declined by 9.2 percent between July-March 2010-11 and another negative 0.4 percent in July-March 2011-12. Its contribution to Large Scale Manufacturing (LSM) is 4.44 percent while of the textile sector is 20.91 percent, which claimed a loss of one billion dollars in export revenue due to shortage of gas supply. In short, it is very difficult for the government to balance the needs for gas of competing sectors and nine times out of ten it cedes to the demands of the people - an expected outcome in a democracy especially when elections are likely to be held within the year. Or in other words, the gas management plan is not the most efficient distribution of scarce gas resources.
Ideally the government would have formulated a gas management plan premised on getting the maximum rate of return per unit of gas to strengthen our weak macroeconomic indicators, particularly productivity. Pakistan's growth rate, according to Federal Finance Minister Hafeez Sheikh in his June budget speech this year, was 3.7 percent - a rate that was upgraded from the 3.1 percent calculated by the Pakistan Bureau of Statistics (PBS) as a consequence of the change in the base year from 2000, a year of particularly poor growth with all major donors withdrawing their support subsequent to a bloodless army coup on 12th October 1999, to 2005-06. In the aftermath of 17 major surveys carried out by PBS, the conclusion was that there had been a change in the contribution of different sectors to the GDP and therefore a change in base year was warranted. Had the Finance Minister allowed the change of base year then the gas load management plan may have been based on more informed data of the contribution of the sectoral output to the GDP.
Those who may blame the current dispensation for the gas crisis would do well to recall a study that was undertaken by Hagler Bailly, a global management consulting firm with an office in Islamabad in 2006, which concluded that Pakistan would begin to experience gas shortages starting in 2007, and the demand supply gap will widen each year to cripple the economy by 2025, when shortage was forecast to be 11,092 MMCFD (million standard cubic feet per day) against total 13,259 MMCFD production. The report warned that until and unless Pakistan began to look for alternate fuel sources gas shortage would become progressively worse. The list of alternatives has been identified for quite some time though each remains stalled: (i) Iran-Pakistan gas pipeline that remains hostage to US resistance and its use of considerable leverage on Pakistan; (ii) Turkmenistan-Afghanistan-Pakistan-India gas pipeline project that is suffering from a dearth of capital mainly due to the high risks to the pipeline associated with Afghanistan's profoundly precarious law and order situation; (iii) import of LNG from Qatar; and (iv) tight/shale gas extraction within Pakistan. There is, therefore, an urgent need to move forward on these proposals.
Last but not least. It is, however, interesting to note that a significant headway seems to have been made on TAPI gas pipeline project in recent days. According to Turkmenistan, the holder of world's fourth-largest natural gas reserves, this important Central Asian country will hold roadshows in September-October for investors willing to take part in the TAPI project. The roadshows will be held in Singapore, New York and London. Though security challenges are likely to become even more formidable for the 735-km gas pipeline, which would run through Herat and Kandahar, after a planned pullout of US-led Nato troops from Afghanistan in 2014, soaring Turkmen optimism is indeed good news, particularly for energy-hungry regional rivals India and Pakistan. Optimism must outweigh pessimism.