Energy security is one of the non-traditional security threats that requires due importance by any state. Pakistan needs to make efforts that secure the country’s energy resources, benefitting the populace and economy alike.
Energy security has become a paramount concern in the modern world. It contributes directly to the economic and national security of a country. After the end of the Second World War, USA, USSR and the Allied countries of Europe, Canada and Australia diverted their attention and war capacity to industrial and economic progress and their energy consumption shot up creating a strong dependence on indigenous and imported energy resources, mainly oil and coal at that time. Over a tenfold increase in energy consumption in these countries led to strong economic growth creating a new class of economies called the Organization for Economic Co-operation and Development (OECD) – which resulted in a world of ‘have and have nots’. Following the same track, a number of the Asian Tigers later joined the OECD ranks by higher energy consumption and strong economic growth. Pakistan, as a fledgling country right in the early days of 1960s and 1970s, started an industrial complex at Karachi and achieved good economic progress. This was made possible by adequate volumes of natural gas discovered at Sui in 1952. The country wisely started extending gas infrastructure to serve the greater part of the country. More gas was being discovered adding to the gas reserves. During those decades the economy grew strong and it is said that South Korea borrowed the Five Years Planning Model to emulate our industrial growth. That phase of industrial development came to a halt when the industrial and business conglomerates were nationalized in the 1970s which led to their mismanagement and marginalization in due course by the public sector.
Pakistan, as a fledgling country right in the early days of 1960s and 1970s, started an industrial complex at Karachi and achieved good economic progress. This was made possible by adequate volumes of natural gas discovered at Sui in 1952.
Pakistan continued to discover more natural gas throughout the country and the natural gas infrastructure was also developed apace. For oil and refined petroleum products, the country remained dependent on imports. Although some quantity of coal had historically been produced from various primitive mines all over the country, its use was limited to home-heating and sub-industrial uses like brick kilns and later in the cement industry. Natural gas remained the mainstay of our energy supply and the country could easily be labeled as a natural gas energy economy. The supply of the indigenous gas continued to grow at a healthy rate of around 3.5% per year till about 2010.
The period from 2010 to 2015 witnessed the worst energy crisis and power became uncertain as well as expensive owing to the adverse fuel generating mix. Over six per cent of the electricity was generated using diesel, which was four to five times more expensive than the power generated using indigenous gas. About 40% of the electricity was produced using furnace oil that was also more than twice as expensive compared with that from indigenous gas.
After the nuclear explosions on May 28, 1998, in response to those of neighboring India a couple of weeks earlier, Pakistan was subjected to economic sanctions and consequently it suffered from a serious energy crisis as it faced constraints of foreign exchange for importing the required quantities of crude oil, refined petroleum products, principally motor gasoline, diesel, light speed diesel, aviation fuel and furnace oil used in power generation. In view of the prevailing economic sanctions, the country followed an ingenious strategy to introduce natural gas to fuel the automotive sector in the form of compressed natural gas (CNG) to keep the wheels running. This initiative reduced the burden of the import of motor gasoline and the country was able to avert the consequential energy crisis and kept the economy growing. A new energy strategy had been devised and published in the Ministry of Petroleum & Natural Resources’ Annual Energy Book of 1998. It was planned to increase the share of natural gas to 50% of our primary energy mix for deriving multiple economic, environmental, and financial benefits of the indigenous energy. Use of CNG in vehicles resulted in the reduced import of motor gasoline and helped in easing the balance of payment difficulties. The strategy of increasing the role of natural gas was predicated on the plans to start importing natural gas through the proposed interstate gas pipelines from Iran and Turkmenistan. It was later considered expedient to start importing LNG as an interim arrangement till the pipeline(s) materialized. A beneficial mix of LNG and imported pipeline gas was to become the central strategy for energy security. By 2005, it had become clear that the regional gas pipelines were facing serious difficulties, dashing our plans of importing the right form and amount of energy to fuel our economy. It had also become clear that the historical growth in indigenous supply of natural gas might not be sustainable beyond 2010. Efforts were rightly initiated to start importing LNG while continuing to work on the gas pipelines.
LNG made its debut in 2015 and started to ease the energy crisis. In a period of two years, the most expensive electricity based on diesel had been eliminated and use of fuel oil in the generation mix had also started reducing.
If the initial efforts of importing LNG by 2005 had been successful, Pakistan could have achieved a beneficial transition to import deficit gas and keep the economy growing. A strong effort was started to import LNG when a call for expression of interest (EOI) was made in the international market around 2002. It later became a joke as every successive authority quashed the earlier international call and it appeared that there had come about wheels within wheels which plagued the import of LNG. Also, the prospects of either of the two interstate gas pipelines continued to grow more and more distant as the matter had gone beyond Pakistan’s control. In the absence of the import of LNG, gas shortages crept in around 2011 and continued to increase in intensity with each passing year, costing our economy heavily. Power shortage resulting from gas shortage forced a lot of our industries to locate abroad which caused an enduring setback to the national economy. The period from 2010 to 2015 witnessed the worst energy crisis and power became uncertain as well as expensive owing to the adverse fuel generating mix. Over six per cent of the electricity was generated using diesel, which was four to five times more expensive than the power generated using indigenous gas. About 40% of the electricity was produced using furnace oil that was also more than twice as expensive compared with that from indigenous gas.
A new initiative was then taken by the Government of Punjab to install three mega LNG based power plants using the latest technology launched by General Electric. They deployed their latest signature turbine, 9HA, with the highest thermal efficiency in the market of over 62%. This turbine made its debut in Pakistan and took a long teething time in its commissioning. These plants were based on natural gas and together added about 3600MW of cleaner and efficient power. Large scale new gas-based power capacity moved the government to negotiate a long-term LNG import contract with the Government of Qatar for 15 years. It was a government-to-government deal for 3.75 million ton capacity a year, at a relatively lower gradient of 13.37% of the international price of crude oil. The contracted quantity of gas would be sufficient for generating 2000 MW of electricity only. LNG made its debut in 2015 and started to ease the energy crisis. In a period of two years, the most expensive electricity based on diesel had been eliminated and use of fuel oil in the generation mix had also started reducing. It was planned to install five LNG import terminals including one at Gwadar. But as it happened, only two terminals were installed which are operating at present.
From 2015 to 2020 LNG remained a buyers’ market as the supply capacity exceeded the international demand. During this period, the surplus LNG found its way to spot sale and numerous LNG loaded ships waited in the seas for buyers. Consequently, spot LNG became the fastest growing commodity in the international LNG trade.
A new phase of energy projects was initiated in 2014 under the China-Pakistan Economic Corridor (CPEC) with about $37 billion in the first phase, known as the Early Harvest energy projects. These projects covered all technologies, including fuel oil, natural gas, coal, hydel, solar, wind and nuclear for a total capacity of about 13000 MW. Because of the supplier funding mode, these projects were decided in haste as the country did not have to make financing arrangements from the credit market. The haste would cause serious consequences that would continue to plague the national economy for decades to come. While the power plants started constructing, no attention was paid to improving the electricity grid or increasing the evacuation capacity. It was only after some power projects were commissioned that an effort was made to start some transmission lines projects. The most serious setback was that the Early Harvest power was not prudently limited to the extent that our economy would be ready to utilize. Consequently, some plants were commissioned but could not be dispatched due to the of lack of demand, the evacuation capacity or funds. Resultantly, the burden of obligatory capacity payments without generating the power rose to 850 billion rupees in 2021, and it is projected to increase to 1200 billion rupees by next year. This has become a new burden on our already out of control circular debt of trillions of rupees. There was another major flaw with respect to the location of some of the coal-based power plants. Coal-based power makes an economic sense only if it does not involve the transportation of coal over a long haul. The power plants that were based on the imported coal should have been co-located with the coal import jetties. Instead of moving coal to Sahiwal, and making the generation too expensive, the power should have been generated near the jetty and transported to Sahiwal saving a few rupees per unit of tariff. The industry terms it ‘Coal to Wire’, that coal be converted into electricity to be transported by wire for substantial savings. Besides, Sahiwal is located in the food basket area of Punjab and it is crucial to preserve its environment.
The other major flaw was the defective planning and sequencing of the power plants. CPEC projects also contained Special Economic Zones (SEZs) which were to create new industrial units and demand for a greater economic output. It would have been better if some of the SEZs were initiated earlier along with the Early Harvest energy plants so that by the time the power plants were completed, the produced power was used by the new productive industry to contribute positively to the economic well-being of the country.
Pakistan had been able to perform relatively better during the challenges of the pandemic and a report by The Economist lists Pakistan at the top of the global economies during the pandemic period. But the impending unprecedented energy shocks could wash out the economic benefits during the coming winter months.
The total installed power capacity has now reached 40,000 MW and, excluding some 7000 MW old/obsolescent plants, we have 33000 MW of reliable capacity whereas the maximum demand is around 25000 MW. The system suffers from serious transmission and distribution constraints and plans/projects at hand are to nearly double the reliable evacuation capacity.
From 2015 to 2020 LNG remained a buyers’ market as the supply capacity exceeded the international demand. During this period, surplus LNG found its way to spot sale and numerous LNG loaded ships waited in the seas for buyers. Consequently, spot LNG became the fastest growing commodity in the international LNG trade. It provided a major benefit to the buyers of avoiding long term LNG contracts. It also provided a useful flexibility as spot LNG could be purchased at a short notice and often at lower prices than the long-term contracts. Our authorities followed a mixed approach of buying LNG from Qatar against the long-term contract and the remaining through flexible spot LNG. Because of the global environment of surplus LNG capacity, our spot LNG purchases were substantially below the contracted commodity. Spot LNG was further broken into three and five years contracts which provided us with the flexibility of an optimal price advantage.
After the onset of the pandemic, the international LNG market took a 180 degrees turn and grew very tight. The installed global capacity is less than the prevailing demand which has hiked up LNG prices to an unprecedented level and reduced its availability. The situation will grow worse during the approaching winter months, especially if it turns out to be severe due to the climate change effects. It was common to buy LNG under ten dollars a unit in winters but it is now costing over thirty dollars, creating serious issues of cost and balance of payment for the already stressed economy of Pakistan. It is ironic that instead of using the highly expensive LNG in productive sectors of the national economy, most of the imported LNG will be used to augment the domestic gas supply during the winter months. It is obvious that LNG would have to be highly subsidized to bring it within the purchasing power of the lower slabs of the domestic consumers. This is bound to compound and accentuate the energy crisis and further stress the national economy. It is expected that essential sectors of gas use, like the export based industry and the domestic use, will be accorded higher priority and CNG and the common industry will be on a lower priority.
Pakistan had been able to perform relatively better during the challenges of the pandemic and a report by The Economist lists Pakistan at the top of the global economies during the pandemic period. But the impending unprecedented energy shocks could wash out the economic benefits during the coming winter months. There would be a strong pressure on the regulating institutions to optimally control the power generation mix to minimize the cost. Use of non-fossil fuel power from nuclear, hydel, solar and wind plants needs to be maximized and the use of fossil fuel plants of LNG and fuel oil needs to be minimized. Coal-based electricity could be treated as swing electricity depending upon the price of the imported coal. It is quite normal for coal prices to also rise in relation to that of oil. The required optimization would be beyond simple human control and will require very sophisticated simulators by the controlling/regulating institutions of NTDC and NEPRA. There are numerous degrees of freedom involved in the economic dispatching of electricity from various power plants and it ideally suits a comprehensive optimization exercise. Another measure, which could help reduce the power cost and outages during the challenging winter, would be to control the transmission and distribution losses, especially gas and power theft.
The government could also enforce greater energy efficiency of gas and electricity appliances to reduce energy consumption and the cost. The consumers themselves could exercise greater control on the use of energy, be it electricity or natural gas. Conservation has become very essential to improve the supply and reduce the cost. It takes only an instant to switch on an electric appliance and not switching it off when not needed would amount to insensitivity in terms of the prevailing national energy crisis. With national spirit, commitment and a cooperative approach, the scary time can pass with minimum dent to the economy or hurting the society.
While concluding, it might be reassuring to highlight the great strife Pakistan is making in hydropower and water storage projects. Never in our national history have we had so many hydroelectric projects and water dams under construction. About 9 major projects, that include the Diamer-Bhasha Dam, Mohmand Dam and Dasu hydropower project, are under construction for $26 billion and on completion will add to 11 million acre foot of water storage and 9000 MW of clean and green electricity. Suki Kinari, a run-of-the-river power project built under CPEC on the Kaghan River, has added over 880 MW hydel generation. The first CPEC hydroelectric project to be completed is the Karot Jhelum River Project that has just reportedly started impounding its reservoir and will go into generation after a few months of over 700 MW of green electricity. It is anticipated that once the under-construction hydel plants are completed, Pakistan would be able to regain a fifty-fifty balance between clean and green power and fossil fuel generated electricity besides the much needed water for drinking and irrigation. It will reduce the generation cost, propel the economy, and safeguard the environment for a brighter future of Pakistan.
The writer holds a PhD degree from Stanford University, California, USA. He is a former Federal Secretary and has been CEO/Chairman of OGDCL and Chairman NEPRA.
E-mail: [email protected]
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