LNG delays push Pakistan towards coal

petroleum-economist.com General,  International 2020-02-19 15:58:43

Pakistan's hope that the growth of LNG imports would relieve energy-induced constraints on economic growth has been dashed by project delays. Instead, it has turned to the IMF for economic help and coal to relieve energy shortages

When Pakistan began importing LNG in March 2015, marking its first imports of natural gas in any form, some hoped that the country would become a 30mn t/yr market as early as 2020.

The optimists—notably former prime minister Shahid Khaqan Abbasi—thought imports would help the nation escape energy shortages so severe and prolonged that they had constrained economic growth for more than a decade.

Five years and a change in government later, expectations are tempered by the slow pace of LNG import infrastructure development. The Engro Elengy Terminal that started up in March 2015 was followed in November 2017 by the Pakistan GasPort (PGP) project. Since then, nothing.

LNG imports had been growing quickly, from 1.1mn t in 2015 to 6.9mn t/yr in 2018, an average annual growth rate of 85%. However, provisional data for 2019 suggests that the growth of imports rose just 10% to 7.6mn t.

LNG import infrastructure constraints loom over further growth. The Engro terminal has peak regasification capacity of 5.2mn t/yr (690bn ft³/d) while the PGP project has peak capacity of 5.7mn t/yr (750bn ft³/d). The combined total of 10.7mn t/yr is a long way short of the vaunted 30mn t/yr.

Yet another IMF bail-out

By 2018, it seemed that Pakistan's economic growth had begun accelerating, thanks in part to the easing of energy shortages. GDP growth, which had been languishing at around 4%/yr, rose to 5.5% in 2017/18, and the International Monetary Fund (IMF) was expecting a rise to 7%/yr in the 2020s.

Again, hopes have been dashed. The July 2018 general election led to a change of government and, less than two months after assuming office in August, the new prime minister, former international cricketer Imran Khan, was knocking on the door of the IMF to ask for financial assistance.

A $6bn 39-month bail-out, Pakistan's 22nd IMF arrangement, was agreed in July 2019 to address "a legacy of misaligned economic policies" that had been fuelling consumption and short-term growth at the cost of eroding macroeconomic buffers, increasing external and public debt and depleting international reserves.

The fund's first deputy managing director and acting chairman, David Lipton, commented that "addressing structural weaknesses in the energy sector and improving the governance of state-owned enterprises" would ensure efficiency and better services and therefore boost economic growth.

The IMF now projects real GDP growth of just 2.4% for fiscal year (FY) 2020 (to 30 June 2020).

Turning to coal

While LNG growth has stalled, the use of coal has been rocketing. Its share of primary energy supply more than doubled between 2015 and 2018 from 6.7% to 13.6%.

Over that period, primary energy supply grew by a fifth, so in absolute terms coal use rose from 4.7mn t to 11.6mn t, or 147%.

Pakistan has long depended heavily on gas for its primary energy. This has partly been because gas was plentiful and cheap when its indigenous reserves were first developed and partly because it lacks reserves of other fuels.

The government has been striving to boost gas supply by incentivising indigenous production and with other efforts to import gas by pipeline and as LNG. However, the nation's Oil & Gas Regulatory Authority (OGRA) predicts an inexorable decline in indigenous production, from 3.3bn ft³/d in FY2018 to 1.7bn ft³/d by FY2028.

As for the two import pipelines that Pakistan is hoping for—the 750mn ft³/d Iran-Pakistan (IP) pipeline and the 1.325bn ft³/d Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline—both face a variety of political and financial obstacles and their start-up dates remain uncertain.

OGRA's projection that both will start up in FY2020 and reach full capacity in FY2021 is hopelessly optimistic.

It gets worse

All the growth in Pakistan's gas consumption since 2015 has come from LNG imports, with domestic gas production remaining stubbornly flat at around 35bn m³/yr (3.4bn ft³/d).

OGRA predicts that unconstrained demand for gas will grow to 8.4bn ft³/d by FY2028.

If that turns out to be correct, and so does the projection for the decline in indigenous production, without imports by LNG and pipeline the demand-supply gap would rise to 6.7bn ft³/d by FY2028.

With its small nuclear power industry and non-hydro renewables in their infancy, Pakistan would have little option but to turn increasingly to coal and oil, both of which are more carbon-intensive than natural gas.

(Writing by Wenxin Wu  Editing by Becky Du)
For any questions, please contact us by inquiry@fwenergy.com or +86-351-7219322.

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