Russia and Pakistan appear to have finally agreed to build the Pak Stream Gas Pipeline, almost six years after discussions started. The announcement by Energy Minister Hammad Azhar came three days after a 12-member Russian delegation arrived in Islamabad for advanced talks. Under the new deal, Pakistan will have a 74% share in the pipeline, with the rest going to Russia. The first agreement for the project was signed in 2015, but was never implemented, partly due to the risk of running foul of US sanctions on Russia. But in May, an amended agreement was signed to jumpstart the deal.
The pipeline to be built under the deal will run from Karachi to Lahore and be used to transport up to 2 billion cubic feet per day (bcfd) of imported liquefied natural gas (LNG). Interestingly, Pakistan’s current capacity at its two LNG terminals is just 1.2 bcfd. However, work on two new terminals is ongoing. The government wants to increase capacity to at least 3 bcfd in the next three years to address the increase in domestic demand. As part of this, it signed a deal earlier this year to almost double the current 0.5 bcfd in LNG imports from Qatar.
However, while the new pipeline will surely help ease supply shortages once it is fully operational, maintaining its viability is a separate issue. Pakistan still lacks a legal framework to recover the price of imported gas from domestic consumers and is currently selling LNG to the commercial sector with heavy subsidies, causing a double hit to the national kitty. Meanwhile, the power sector, which in theory could easily recover the cost of imported gas, has been reluctant to do so because of the sensitivity of price increases. The end result is that gas subsidies have led to a build-up of about Rs100 billion in circular debt in the last three years.
The PTI government has also been unable to convince the provinces to introduce weighted average gas prices, which the provinces feel would subsidise consumers in Punjab. Whether or not this dispute is justifiable or pure politics — Punjab is also run by the PTI — it is a pointless one. Pakistan needs gas, and the provinces need to get on the same page as the Centre soon.
Published in The Express Tribune, July 19th, 2021.
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