The gas fix

Published: January 4, 2012

The writer is editor of business and economic policy for Express News. He can be found on Twitter@khurramhusain khurram.husain@tribune.com.pk

It’s never pretty watching an addict in the throes of withdrawal. But it’s something else to watch an entire society go through intense withdrawal together.

For about 15 years now, Pakistan has been addicted to natural gas. I don’t invoke the metaphor of addiction lightly — it is in fact the single best metaphor to describe the manner in which we have consumed this most precious natural endowment of ours.

Over the past 15 years, our consumption of what is called ‘primary energy’ has increased by 80 per cent, an increase sharper than the previous two decades combined. Primary energy basically refers to raw fuel, before it has been processed or transformed into electricity or fertilizer or any other finished form of energy.

The single largest source of our primary energy is indigenous natural gas, accounting for a little less than half of our total primary energy consumption. And over the past 15 years, we have been extracting and consuming our endowment of natural gas at an alarming rate.

Fuelling this spike in consumption is the way we price our gas. The Petroleum Institute of Pakistan, in its latest annual report says that “a low gas price has become a significant disincentive in attracting new gas supplies, either through increased domestic exploration activities or via imports of liquefied natural gas (LNG) or regional gas pipeline imports”.

The meaning is simple: nobody wants to invest in exploration or imports if the price at which the gas is sold is far below the world market price. The only other way to encourage someone to make the investment, therefore, is for the government to offer a ‘subsidy’ on the final price, offering to pay the difference from government funds. But nobody has faith that our government will be able to meet these obligations, especially since the circular debt is a living example of non-payment before us all.

The net result of this low price is that we’ve become accustomed to seeing gas as a cheap and abundant fuel, whereas in reality it’s a precious and scarce resource.

Another result of this artificially low price is the unseemly manner in which we have been relying on cheap gas to fill the gaps where our economy has failed to deliver. If gas was perceived as a precious resource, we would have been more judicious in how we utilised it. It was a smart move to use gas to produce fertilizer to fuel our agriculture. It was a remarkably stupid decision to use it as a vehicular fuel, expecting cheap gas to compensate for our failure to arrange urban mass transit. It was equally stupid to encourage industry to move into captive power generation using cheap gas as a way to make up for our failure to arrange power generation capacity for the growth rates of mid-decade. Need I mention that both of these stupidities were gifts of the Musharraf regime?

If the present state of affairs continues, our production of natural gas will decline sharply over the next decade. Again, the Petroleum Institute estimates that our production of natural gas will be a quarter of what it is today in about 15 years if we don’t act quickly to arrange alternate supplies.

For perspective, consider this: our shortfall in gas supply today is about one billion units per day. Look around you and see what this means in reality. In about 15 years this shortfall will hit eight billion units a day. Now imagine where that puts you. And please consider that 15 years will fly by very quickly indeed, especially if present levels of excitement keep up.

The agitations in the streets, the strikes, the bitter wrangling between the industrial sectors — fertilizer versus textiles versus vehicular — all speak of a terrible addiction that we have developed to cheap natural gas piped directly to the point of consumption. The agitated and paralysed state of affairs that grows out of all this is a microcosm of what happens inside the body of the addict as it yearns for its next fix.

All paths out of this state of affairs begin with a hike in the price of natural gas. There is no alternative. This bears repeating over and over again and the government must find a way to get this message across to the society, just like an addict has to realise that the time has come to kick the habit or let it kill you. Otherwise a terrible and inevitable sequence of events gets underway.

If we fail to embark on pricing reform of natural gas, we will fail to arrange additional supplies. If we fail to arrange additional supplies, we will be left chasing mirages and myths such as the Iran Pakistan pipeline, or Thar coal, the massive hydel projects dreamed up by Wapda, or offshore gas or mythical reserves that are believed to be lying undiscovered in Balochistan or Kohat or wherever.

All those are viable ideas, for sure, but they either have such huge financial requirements as to require outside support, or they require so much more exploratory work before they can be considered viable alternatives, that it will be over a decade before we can even start working on them. They are very long-term projects at best.

The question is what to do in the meantime. The only medium-term alternative that is at all viable is imports of Liquiefied Natural Gas (LNG). This gas can start to flow 18 months from financial close. In the meantime, infrastructure already exists to import LPG, which can be easily adapted to handle LNG instead.

But here it is hard to figure out what the government is really doing. Contrary to popular perception, the Supreme Court never killed the original LNG deal involving Mashal — the law ministry did. That project could have been up and running by now, bringing the shortfall under control.

It’s not fair to blame this government entirely for the gas shortfalls. This is a situation more than a decade in the making. But we are entitled to wonder why no credible and strenuous efforts have been made by the government to mitigate the crisis thus far.

Published in The Express Tribune, January 5th, 2012.

Reader Comments (20)

  • Cautious
    Jan 4, 2012 - 11:23PM

    I agree with the author. To make matters worse there is no short term solution. Your energy prices are going to increase – the govt is going to have to finally impose higher taxes on everybody – hard currency reserves are going to vanish and your inflation rate is going to increase significantly. All in all it paints an ugly picture.

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  • asif
    Jan 4, 2012 - 11:34PM

    How is the iran-pakistan gas pipline project different than the medium-term solution of using imported LNG – liquefied gas brought in by tankers and then converted back to gas ? We increase the price of gas in the country, tax the people and build the iran-pakistan pipleline

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  • Jan 5, 2012 - 12:06AM

    Aha, a light begins to dawn…since Pakistan is upset with the U.S. Pakistan will break U.N. sanctions to build the Iran pipeline. Some bodies in the ruling classes get big commissions or percentages as a result. No wonder there is an orchestrated anti-U.S. campaign in Pakistan.

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  • A. Khan
    Jan 5, 2012 - 12:42AM

    We must have the most efficient heating and cooking appliances in the world. The houses do not have sufficient insulation. So many people, I know leave the cooker lit so as not to have to strike a match to light it again. Apart from this government, we should also be blaming ourselves for this mess.

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  • burhan
    Jan 5, 2012 - 12:51AM

    simply the truth nothing but the truth!!! bravo.

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  • Harry Stone
    Jan 5, 2012 - 4:04AM

    This is the expected results when there is no rule of law, no free markets and the government is the oversized or only player in markets. It is not just enegry but every market segment.

    It leads to the inefficiency and corruption that is so common in PAK.

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  • Ather Zaidi
    Jan 5, 2012 - 9:16AM

    A thought-provoking article.

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  • Haider Hussain
    Jan 5, 2012 - 10:23AM

    Spot on Khurram!!!

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  • Baqar
    Jan 5, 2012 - 10:45AM

    It is high time to build coal gasification projects on emergency basis. The breakup given by Petroleum minister highlights industry and power generation as the biggest consumer of gas. Let the remaining gas for domestic use and fertilizer as it can not be ignored while the coal gas be the substitute to run industries and power gen. CNG sector’s share is nominal but a check has to be placed on them too. Public transport must be regulated to run on diesel as they charge diesel fare on CNG.

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  • Kafka
    Jan 5, 2012 - 12:09PM

    Solution: Natural gas is an endowment for the people of Pakistan and only should be used for domestic purposes, vehicles should run on petrol or diesel and the furnace oil should be used by the industry. No CNG for vehicles at all.

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  • Adi
    Jan 5, 2012 - 12:48PM

    Yup, Iran should also not provide cheap fuel to its citizen!

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  • Acorn Guts
    Jan 5, 2012 - 2:25PM

    Very persuasive read. I especially agree with:

    The net result of this low price is that we’ve become accustomed to seeing gas as a cheap and abundant fuel, whereas in reality it’s a precious and scarce resource.

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  • Salahuddin
    Jan 5, 2012 - 2:46PM

    I read a report in 1980s by a Japanese economist in which he described about our ruthless use of natural gas- “Pakistanis are burning silver to bake their bread”.

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  • Aqib Mehboob
    Jan 5, 2012 - 3:37PM

    Price it properly, and the shortage disappears. It really is that simple.

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  • Lobster
    Jan 5, 2012 - 9:32PM

    You didn’t name the government who promoted all this CNG campaign, no other than our beloved dictator Musharraf !! Another economy bubble to burst

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  • Jan 5, 2012 - 10:39PM

    Lack of planning for the times ahead, has always been one of the grievous mistakes ever made by the governments of this unfortunate nation. True! You cannot damn this government for this shortfall, but this government, too, is complicit in ‘lack of planning’ since nothing was done to undo the errors committed erstwhile.

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  • Noor
    Jan 5, 2012 - 11:38PM

    After reading this article I became aware of the ground realities in terms of scarcity of our highly valuable resources.I give credit to the author for highlighting this important point we only look at the demand side of the equation and forget that supply is necessary to match the ever so increasing needs.Unfortunately, policy makers in Pakistan are no where to be seen, they are unable to evoke sense and sensibility in the minds of the populace regarding the scarcity of such valuable resource. My reservations are that the inefficient machinery of the Government will never be able to take up this cause, if indeed its an addiction then the Government is not doing much to pull us out of it, quick fixes like that of a price hike is not the answer, there is lack of trust in the general public where every action of Government is perceived maliciously intended only to fill their own pockets with bundles of money how can they ever explain this to a woman who is unable to feed her kids in the morning due to gas shortage or to a local business man who needs to run his factory.Moreover why is there no shortage in DHA or in places where our ruling elite reside, so it will be a collective effort and only a well thought out plan that can enable us to get out of our plight.

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  • Jan 6, 2012 - 5:10PM

    Governments are wasting methane gas from trash dumps, which could be used to replace natural gas in power plants. Instead, unburned methane contributes to global climate change (floods, melting glaciers, rising sea levels, etc.).

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  • Khalid
    Jan 11, 2012 - 3:18PM

    The issue is good management.

    If Pakistan had a good government with vision and proper management skills we would not be suffering the way we are. I honestly think the this government has realised that it will be hard for them to be re-elected next year so they are stealing as much as they can Recommend

  • Salem
    Feb 4, 2012 - 10:14AM

    Using natural gas as CNG is one the most commercially insensitive decision by Musharaf government.

    Likes of JJVl/Iqbal Z Ahmed never let the LPG market develop just for their sheer greed and desire to make money. LPG share contribution in Pakistan energy mix is less than 1% and per capital consumption one the lowest in the world (5-6 Kgs as opposed to more than 50-70kgs in other developing countries like Thailand, Indonesia, India)

    We are wasting natural gas by supplying it cheap to domestic user. No where in the world natural gas is used for domestic purposes even in Gulf countries which are rich in energy resources. GCC countries use LPG at home. Natural gas is used for industries like fertilizer, cement, power generation which add more value and benefits to economy.

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