third largest), whereas the Turkmenistan-Afghanistan-Pakistan-India (Tapi) pipeline is still at feasibility stage.
Iran has already extended its pipeline to our border and is offering gas at approximately $3.5/mmbtu to potential investors in Iran. If we add transportation costs it would cost approximately $5.5-6/mmBtu in Punjab as opposed to $11.5/mmBtu for Qatar LNG.
How much more expensive would LNG be? If we take 5,000MW as the additional installed power capacity that would run on gas, the demand for gas as fuel would be approximately 180 million mmBtu per annum. As mentioned above, the difference in cost between pipeline gas from Iran or other sources would be $5.5/mmBtu ($6/mmBtu as opposed to $11.5/mmBtu from LNG – at the power plant). Thus this would add approximately $1 billion per annum to the fuel cost or $20 billion for the lifetime of these projects. This money would be far better used for developing much needed social or physical infrastructure or for improving our security.
Is there an urgent need to sign a long-term sale agreement? Due to faulty design our lone LNG terminal cannot receive (and has not received) any LNG carriers as the approach channel needs to be deepened and widened. This will take almost one year and cost around $100m. Therefore until this is sorted out a long-term purchase agreement cannot be effective. The current ad-hoc arrangement of sending the Floating Storage Regasification Unit (FSRU) to Qatar every two weeks for refilling can easily continue at spot rates as this at best is an interim arrangement.
Will the government save $1 billion from gas power stations? Here the government is being disingenuous. When comparing fuel costs they should be done for the same type of turbine. For example, a dual fuel combined cycle gas turbine with 55 percent efficiency such as the one currently in operation at the Kot Addu power station will consume 180kg for furnace oil per megawatt at the current market rate of $0.33/kg; the fuel cost would be $59/mhw.
The same unit when running on gas would consume 5.8mmBtu of gas at $11.5/mmBtu; the cost of fuel would be $66.7/mwh. Therefore furnace oil would be approximately 11 percent cheaper than gas. For an open cycle power station, gas would be cheaper but that would mean converting all existing open cycle units to combined cycle gas turbines which cost billion and would not be practical.
What has been the experience of other countries with long-term purchase agreements? We know that India, which has a long-term agreement at $13/mmBtu, is trying to renegotiate its agreement. Others are waiting for the prices to decrease before signing any long-term commitments.
Is the price of gas likely to increase in the future? No one can predict the future but indications are – including a report by Goldman Sachs – that the price of LNG will remain between $6/mmBtu and $8/mmBtu till 2020. On the supply side Iran is expected to enter the market as well as a number of other countries, including Saudi Arabia, that have started exploring their unconventional gas resources. On the demand side, Japan, a major importer of LNG, will reduce its demand as it restarts its 40,000MW of nuclear power that was shut down post the Fukushima disaster but has been refurbished with additional safety measure.
Similarly there has been an improvement in the efficiency of solar panels. Currently the price of solar power is $60-90/mwh, so any LNG that costs more than $10/mmBtu would not be able to compete with solar power.
All indications are that the efficiency and cost of solar panels will continue to improve, putting further pressure on fossil fuel costs. This is without taking into consideration global warming effects and drivers.
The writer is a former federal minister. Email: mh1 lhr.comsats.net.pk