Resource paucity has long haunted the energy landscape of the country. Steady growth in the demand of energy accentuated by depletion of domestic resources has hobbled the economic growth in the country. Jean Charles Léonard de Sismondi, a Swiss political economist, has dismissed the notion that an economic equilibrium leading to full employment would be immediately and spontaneously achieved.
On the contrary, he suggests that a “certain kind of equilibrium, it is true, is reestablished in the long run, but it is after a frightful amount of suffering”. Energy shortages have taken a toll on the economy. However, the solution to this crisis is in the offing. Over time, successive governments have endeavored to import LNG in the country; and owing to multiple political and other expediencies all but one effort met the same fate.
In 2006 energy policymakers could foresee an energy emergency on a national scale. The energonomists (energy-economists) had a fair inkling of the repercussions of the expanding gas network in the country without augmentation of supplies. But nothing material was done to arrest the looming crisis.
The PPP regime lacked credibility and was marred by corruption in various quarters. Rental power plants and LNG import echoed venal schemes. The corruption watchdog sprang into action and as a result all major energy projects tanked, and country witnessed energy dystopia. It is estimated that an average three percent loss has since been caused to our GDP growth annually.
The present regime was voted into office on its rhetoric of alleviation of the energy crisis. There is no magic wand that will overnight put an end to the energy paucity. The commissioning of an LNG terminal followed by a contract with Qatar Gas at the lowest price in the region is a well-placed chip in the energy block. The benefits of the LNG deal in terms of annual saving of $1 billion, reduction in greenhouse gases and reduction in power outages are clichés. The real benefit lies in the fact that the LNG deal is a leap towards appeasement of the ‘frightful amount of suffering’ as suggested by Sismondi.
It is after many years that the industrial sector in Punjab is getting uninterrupted supply of natural gas (for the past two months). And not just that; there is also talk of the moratorium on new industrial gas connections being lifted. The CNG sector is also benefitting from the commissioning of LNG terminal, environmental benefits by putting into play a cleaner fuel are also sublime. International environmental obligations of Pakistan could only be fulfilled by subsiding fossil fuels that carry mammoth toxic emissions.
According to a 2015 report by Goldman Sachs, LNG is poised to be the second most valuable commodity after oil this year as global trade in LNG will exceed $120 billion. The US has already started exporting liquefied gas from Sabine Pass this year; further pumping of gas followed by a shale boom is now setting its course. With many LNG export projects coming on-stream in Australia this year, the competition in global trade of the super chilled fuel is increasing.
Nearly 73 percent of LNG is traded under long-term contracts; the remaining is sold on spot. Asia has traditionally been the pivot of spot cargoes, and major LNG demand aggregators in Asia are vying to renegotiate long-term contracts with the suppliers. Only recently one of the major importers of LNG from India compelled the supplier to renegotiate the long-term contract.
The Fukushima catastrophe in 2011 led to a ‘cold shutdown’ of nuclear power stations in Japan which spurred the appetite of LNG scaling to as high as $22 per MMBTU. The spike in the price of LNG monumentally incentivised long-term investment in upstream liquefaction trains which, coupled with the shale boom in the US, has led to an excess in the supply of super chilled fuel globally.
That being said, economics drove the paradigm shift of LNG global trade from the ‘suppliers’ market’ to the ‘buyers’ market’ which has been largely welcomed in energy-starved Asia with fanfare. Some energy pundits believe that LNG trade will be de-linked from its indexation with crude oil in the coming years as the super chilled fuel is all set to drive its own economics.
The power sector in Pakistan has been struggling with multifarious problems, technical losses and low recovery being the foremost. The sitting government cleared the circular debt soon after assuming office. It, however, again rose to nearly Rs370 billion over the next two years. The government took a number of steps to cap the circular debt – which has been successfully arrested since Nov 2014.
Realising the global downward trend of LNG, the government decided to set up three Regasified-LNG based power plants in Punjab which will add 3600MWs in the national grid by 2017. The environmental benefits are a mere bolt-on to the number of other advantages of the RLNG-based plants. Transmission pipelines are being laid across the country to augment the supplies, which will eventually benefit all sectors of the economy. There is no arguing that the LNG deal with Qatar embedded with an ‘opener’ clause giving leverage to the buyer for price renegotiation is just the tip of the iceberg.
The petroleum minister is upbeat about more LNG terminals in the country leading to a cleaner and cheaper source of energy. For once, the energy sector expects to see an end to Jean Charles Léonard de Sismondi’s “frightful period of suffering”.
The author is an energy expert.