Pakistan has issued four tenders for purchasing imported LNG for July, which aims to bridge the growing gap between demand and supply of gas in the country. Pakistan is already importing LNG under four long-term agreements, but because of the country’s gas shortage, the government has decided to invite four more cargoes for July. Pakistan is trying to fulfill the shortage of imported LNG gas. But it is proving to be a burden.
The Russia-Ukraine conflict has pushed oil and coal prices to new heights but also affected gas prices, which are currently at an all-time high worldwide. According to economists, Pakistan’s growing dependence on imported LNG is threatening the country’s energy security and financial stability according to the Institute for Energy Economics and Financial Analysis (IEEFA).
Pakistan’s growing reliance on imported LNG comes at a time when gas prices are at an all-time high in the global market due to a dispute between Ukraine and Russia and hurt countries like Pakistan. LNG in Pakistan is being imported from abroad under long-term agreements made in previous periods of PML-N and PTI. However, to meet the demand for gas, ‘spot cargo’ (LNG) is procured at a price in the current global market, which is much higher than long-term contracts.
Current state of gas production and consumption in Pakistan
According to official figures, Pakistan’s current domestic gas production is 3000 to 4000 MMCFD, while the country needs 6000 to 7000 MMCFD. This gap in domestic production and consumption is bridged by imported LNG, for which Pakistan has entered into four long-term agreements in which two companies, ENI and Gunwar, supply gas to Pakistan. In Pakistan, Power plants use 35% of the gas, 21% for domestic use, 17% for the industrial sector and 16% for the fertilizer sector.
Pakistan started importing gas in 2015 to meet the local demand, and the amount of gas imported in the first year will continue to increase in the coming years. If you look at the data for the first eleven months of the current financial year, it has increased by more than 86% in those eleven months of last year. Pakistan imported 2.3 billion of gas in July-May last fiscal year, and in this current fiscal year, Pakistan has imported 4.2 billion. In May alone, the import gas bill was 58583 million, up from 27276 million in May last year.
Why is Pakistan’s dependence on imported gas increasing?
Pakistan’s economy has become more dependent on gas since the 1980s. Over time, that is likely to increase. Gas is being used for domestic and industrial use and power generation, which has led to increased consumption, but its local reserves in Pakistan are declining, and no new major discovery of gas has been made. The reason for this is that, on the one hand, there is a security situation in Pakistan where no new investment has been made; on the other hand, there has been a huge increase in gas consumption.
Russia, Ukraine conflict and difficulties in importing gas to Pakistan
Complaints of gas shortage in the winter season are common in Pakistan. However, in the current year, Pakistan suffers from a gas shortage in both cold and hot seasons. Power plants in Pakistan generate electricity from gas. According to the IEEFA report, since December 2021, 3500 MW of electricity could not be generated due to a shortage of gas and 10 to 18 hours of load shedding has become the norm in the country in recent weeks.
China, Japan and Korea are the major importers of LNG in the world, which have the resources, and most of the LNG supply goes to these countries. When Russia cut off supplies due to the Ukraine conflict, it raised gas prices because Russia is one of the world’s largest gas suppliers. Gas prices fell below 10 dollars per MMBtu during the Coronavirus, but after the Corona, when world economies recovered, demand increased and then the Ukraine-Russia conflict led to gas shortages. Prices also exceeded 35 per MMBtu, which is between 25 and 30 MMBtu.
Were Pakistan’s long-term gas import agreements right?
When Pakistan started importing gas in 2015, long-term agreements were made for it, under which the import price of gas is fixed at the Brent oil price of crude oil. Agreements reached during the Nawaz League era in 2015 accounted for 13.3% of the current price of Brent oil, compared to 10.2% during the PTI era. Long-term agreements of PTI are finer than PML(N). It saved Pakistan millions of dollars as the inflation rate was increased worldwide. One of these long-term agreements, done by PML(N), is coming to an end, but work is being done for more long-term agreements. Long-term agreements were made with Qatar, and now Pakistan is also negotiating with Azerbaijan and Saudi Arabia for long-term agreements, and it is hoped that progress will be made in this regard in three to four months.
In this situation, Pakistan should follow an independent foreign policy and start buying oil and gas from Russia. It’s the only solution to maintain its economy. Otherwise, the Pakistani nation will suffer a lot.
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