Gas shortage adversely impacting economy

Pakistan’s economic self-reliance mainly depends on the self sufficiency in its energy requirements as those provide oxygen for the national economy. The dream to bring prosperity in Pakistan has been shattered by energy shortages, which are sinking the country into the quicksand of poverty. Pakistan’s daily gas requirement is 6.5 billion cubic feet (BCF), against its current supply of 4 BCF, depicting a shortfall of 2.5 BCF. It is predicted that Pakistan’s domestic gas production will fall from the current level of 4 billion cubic feet per day (cfd) to 2 billion cfd by 2020. Demand, on the other hand, is expected to soar to 8 billion cfd by that time, creating a 6 billion cfd deficit. Pakistan’s Petroleum Minister Dr Asim Hussain, in a recent statement has acknowledged that the country is currently facing a gas shortage of 700 mmcfd, even though it has discovered gas reserves of 500 mmcfd, which could not yet be injected into the economy because of litigation and pricing issues. Pakistan meets 85 per cent of its energy requirements through imported petroleum products, resulting in a huge drain on foreign exchange. So far, our strategy is all about curbing demand through load management plans and policies which always has adverse impacts on the national economy. No significant efforts are seen to focus on improving the supply side.

The predicted
demand-supply gap

Presently, the demand-supply gap in the energy sector has reached one of its highest levels in the country. This gap subsequently produced a huge shortage of power that has adversely affected the economy. The crippling economy was further damaged when many industrial units had to be shut down, rendering thousands of the skilled workers jobless. A fair number of investors have relocated their units to Bangladesh to take advantage of uninterrupted electricity supply and cheap labour. Consequently, this ongoing chain-reaction of crises is accelerating inflation and contributing to a rise in the cost of living to new heights.
The gas shortage in the country is not an over-night phenomenon as experts had predicted the imminent crisis well before time, in 2006. Hagler Bailly, a global management consulting firm based in Islamabad, released its study report in 2006 saying that Pakistan is going to witness a gas shortage starting 2007, and the demand-supply gap will continue to grow every year to stand-still the by 2025, when shortage will reach a level of 11,092 MMCFD (million standard cubic feet per day) against total 13,259 MMCFD production. The report added that Pakistan’s gas shortage would worsen in the next two decades if it did not manage to produce energy from alternative sources. What we are experiencing today is the vindication of Hagler Bailly who warned us as early as 2006.
An expert opinion says that demand for natural gas in Pakistan increased by almost 10 per cent annually from 2000-01 to 2007-08, reaching around 3,200m cubic feet per day (MMCFD) last year, against total production of 3,774 MMCFD, according to . But, during 2008-2009, the demand for natural gas exceeded the available supply, with production of 4,528 MMCFD gas against demand for 4,731 MMCFD, indicating a shortfall of more than 200 MMCFD. As the winter is approaching, Sui Northern Gas sources have reportedly told that the company has to tackle a shortfall of 700 MMCFD of gas due to increasing use of heaters and geysers.

Pakistan-Iran gas pipeline project: delay on our part

Despite an early warning and a clear indication of the hovering energy crisis, Pakistani authorities did not bother to take a serious action against the threat which has fractured our industry and exports. Under these circumstances, the significance of Pakistan Iran gas pipeline project has increased manifold as it is the only viable option to provide an extra amount of gas to the system. But it is unfortunate to observe that lethargy, inaction and a sense of indecisiveness have collectively caused an inordinate delay in the project and have further worsened the crisis. If Pakistani leadership sincerely wanted to steer the country clear of the energy crisis, it might have completed its part of the pipeline project and it could have been functional today. The authorities say that the project will be completed by 2014 but the reality is that due to the slow pace of progress on the Pakistani side that seems unlikely. Iran, on the other hand, has undertaken its commitment by completing the laying of 1,000 kilometers up to the Pakistani border. “Iran could now export electricity to Pakistan if it could be connected with the country’s grid system”, said Ali Akbar Salehi, Iran’s foreign minister during his recent visit to Islamabad. “The project has almost reached the borders of Pakistan,” he added. The two sides signed an export deal in 2009 for Iran to supply natural gas to its eastern neighbour from 2014, with sales to reach 750 million cubic feet (21 million cubic metres) to one billion cubic feet per day by mid-2015. The finalised project, in 2007, included India and Pakistan as the beneficiaries of the Iranian gas but India withdrew from the project over pricing and security issues. Following a civilian nuclear deal with the in 2008, India quit the project in 2009. Iran has particularly expressed interest in the People’s Republic of China’s participation in the project.

Hindrances to project completion

United States is pressing Pakistan to abandon the pipeline project ahead of its sanctions against Iran. A few months ago, President Barack Obama signed a law titled the Comprehensive Iran Sanctions, Accountability, and Divestment Act that could potentially create problems for Pakistan and its companies which are in process of importing gas from Iran. Under the legislation, the US can bar foreign companies from the American financial system and markets if they continue to do business with Iranian entities, which are involved in the energy sector. However Pakistani Foreign Office says that the potential US sanctions on Iran do not apply to the gas sector. The Pakistani government was conveyed by US diplomatic channels that if the project was cancelled, Pakistan would receive assistance from the United States for construction of a liquefied natural gas terminal and importing electricity from Tajikistan through Afghanistan’s Wakhan Corridor. The most glaring factor of Pakistan-Iran gas pipeline is that Iran, keeping in view the difficulties of Pakistan expedited the speed of work and completed its part of the pipeline for providing relief to its neighbor. But Pakistan, on the other hand, has not yet started work on the project that is still at survey and feasibility study stages. This indicates that there is no guarantee that the project will be completed by 2014 as it has been claimed by the Pakistani Government.

Delays worsening
gas situation

Federal Minister for Petroleum and Natural Resources Dr Asim Hussain, in his recent statement, said that the estimated cost of the project is $1.2 billion and talks with different companies for laying the pipeline on the Pakistani side are in progress. He said that survey on Pak-Iran gas pipeline project was launched and the whole task was expected to be completed by the end of 2014. It is to be noted that the total cost of the project amounts to $7.5 billion. The Minister said that the feasibility report was being prepared and after this process, tenders would be invited for choosing the best companies so that the project could be completed in a smooth way. The fate of this project is still in doubt due to American displeasure over the deal. This was the reason behind Pakistan’s reluctance in accepting the Iranian offer of sponsoring the financial cost of the project required for Pakistan’s portion of the pipeline. Pakistan is looking forward to get a sponsorship of $1.5 billion from China instead. However the cost might rise to $2 billion, once the feasibility report is completed. Americans are closely observing the situation and this is a crucial period for Pakistan. Our leadership needs to decide whether it wants to ensure the country’s survival through the pipeline project or close its eyes and wait for a miracle to happen, in case they opt to surrender themselves before American pressure. Our country needs to deploy diplomacy in a mode and manner suitable for us to emerge from this political cum economic stalemate.