We talk much about the power crisis but equally important is availability and affordability of gas, which across the world is a prime source of fuel to run power plants, industry and homes. Pakistan is among only a couple of dozens or so countries that are blessed with a fairly substantial availability of natural gas. It was first discovered in 1953 at Sui amidst countrywide celebrations. It was readily made available in abundance to the public in the mid 1950s. Today the Sui fields, once the pride and energy lifeline of the country stands depleted by 70%. It is estimated that only 2.3 TCF is remaining. Likewise, the capacity of Badin Gas fell from 170 mmcfd to 80 mmcfd and same is the case with other fields as well.
For the first few decades, its use was primarily limited to household consumption as a replacement for coal and wood. Its network was extended to the doorstep of consumers. Its affordability was so attractive that people let it burn the whole day rather than waste a stick of match to light it again, a criminal waste when viewed in retrospect. Even today when gas is much needed for our power plants and industry it continues to be wasted in household cooking, water heating geysers and the recent trend in Pakistan of heating the house with hot water radiators fed through mini boilers.
With the development of Industry in Pakistan from 1960 onward, the consumption of natural gas extended to industrial use and in 1990's to power plants in the public and private sector as a very cost-effective and environment-friendly fuel. In the 2000s, its use as CNG was extended to the transport sector, which added significantly to the overexploitation of natural gas. It was only by 2012 that we realised these blunders but by then it was too late.
In short, the availability of natural gas as a self-sustainable national asset was criminally exploited by all segments of our society, for which the successive governments' regulatory entities are equally responsible as they played no role to effectively regulate it and appropriately price its use. If this recklessness was arrested in a timely fashion, today, ample natural gas would have been available to run power plants to provide sufficient, affordable and environment-friendly power to the nation. An availability of 700 mmcfd alone could have injected an additional power of 3000 MW at a low cost of Rs 5/unit vs Rs 18 on fuel oil and Rs 22 on HSD.
We talk much about power theft but not enough about gas theft. Gas theft has now reached the same level as power theft if not more. It is estimated that gas transmission losses (thefts) are over 20%, mostly by the industries and their gas-operated captive power plants. There is neither public awakening nor any eagerness shown by regulatory authorities to stem the increasing trend of gas theft. The violators are let off too easily.
Gas enhancement and greenfield projects like Qadirpur gas field, Swan, Uch, Sinjhoro and Kunhar were initiated in the mid 2000's to inject into the system around 500 mmcfd of gas to close the supply and demand gap but have not proved to be sufficient enough. Also, some investments have been made in offshore gas exploration. There are 15 offshore wells but as to date no feasible recovery has been made although the geological survey suggests promising prospects.
Since 2009 not much investment has taken place in the exploration of new natural gas fields due to non-availability of funds in the public sector on account of circular debt while the private investor is reluctant to invest on account of the law and order situation, which is of prime concern in remote areas where they need to operate. On an average one gas field needs around USD 200 million of investment, whereas, one offshore well costs USD 80 million and takes 5-6 years to develop.
Natural gas in Pakistan continues to be the cheapest source of energy with the weighted average cost of around USD 3.5/mmbtu against the world average of USD 4/mmbtu. Also, the 18th Amendment has made things a bit more cumbersome with sharing between provinces and federal government stated to be on 50 / 50 basis. The loyalty paid by the investors to the provinces at present is 12% in line with the global benchmark of 12%.
Foreign investors do rate Pakistan's exploration and investment policies in oil and gas sector as one of the best in the world. This is the reason that the world's leading gas exploration companies have had a strategic presence in Pakistan since the past several decades. They experienced good well-hit rates and achieved significant profitability. An investor looks at two things - the profitably on investment and the security of the investment. While profitability is there, security has been the major issue for quite some time now.
Since the exploration and pluck rate in Pakistan has been outstanding, notwithstanding the fact that low-hanging gas fruits have been plucked in the last six decades, there is still optimism that once the irritant of security is removed, foreign and local investors will again form a beeline to get back in the game. Their aim will be balancing the higher costs with new tariffs, which in the last one year have escalated by 35% and will increase more as per the agreement with the IMF.
Ironically, the public sector organisations not affected by circular debt have ill-performed in the last several years. Oil & Gas Development Company Limited (OGDCL) is one of them. It is infected with inefficiency and nepotism and is too frequently involved in litigation with contractors and unsuccessful bidders backed by powerful vested interests. Mashal Gas Project is one such example of being a victim of litigations driven by vested interests.
The natural gas shortfall in the Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) network is 50% in winter months and 30% in summer time which translate to 1800 mmcfd and 1000 mmcfd respectively. This is quite a substantial shortfall and cause of great concern. While gas production is depleting, demand is rapidly increasing all the while. Experts fear this gap will become unmanageable by 2017. Gas is 48% of Pakistan's total energy needs and is the major part of our energy mix.
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Gas supply distribution comprises of:
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Domestic 19 % (inclusive of water geysers &
house heating boilers)
Power Sector 27% (reduced from 39% in 2006)
Industry 23% (inclusive of captive power plants)
Fertiliser plants 18% (of which 14% is feed stock gas for urea)
CNG Transport 9% (can be replaced with LPG)
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The natural gas production and consumption province wise is:
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Gas Production Gas Consumption
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Sindh 69% 43%
Punjab 5% 46%
KPK 9% 4%
Baluchistan 18% 7%
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The government has no strategic road map to overcome gas shortfall. At best, they are feebly managing it on an ad hoc basis by implementing a rotation system for gas availability to CNG stations, industry and power plants, much like a single fire truck trying to douse fires in multiple houses, and to make it worse the allocation of gas is driven largely by vested interests and political considerations.
To close the gap between demand and supply of gas the government has been considering a number of options since the last 7 years but nothing substantial is on ground as yet, which is a testament to the extremely poor governance in the energy sector of Pakistan. There is, however, a temporary bandage that can be applied to this serious wound, ie, the import of LNG to fill in the gap. This option will be elaborated upon in the next publication on coming Wednesday.
(The writer is Chairman Avant Ventures and former President OICCI & ABB - Asea Brown Boveri)
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