$50bn blunder?

In an ambitious bid to address chronic power shortages, Pakistan embarked on a large-scale LNG-based energy initiative beginning in 2014. This multi-billion-dollar effort included the planning and construction of four major RLNG power plants – Haveli Bahadur Shah, Balloki, Bhikki and Nandipur – as well as the launch of the country’s first LNG import terminal. A decade later, it is worth examining what this investment achieved, what it cost and whether the country is any closer to energy security than when it began.

Planning and agreements for LNG power plants began in 2014. The Haveli Bahadur Shah and Balloki plants were among the first to be approved, with financing and contracts finalised soon after. Construction of the Bhikki Power Plant commenced in 2016. The Nandipur Power Project, commissioned in March 2015, was initially fueled by heavier oils but was later converted to LNG.

Based on industry benchmarks for combined-cycle gas turbine (CCGT) plants and partial privatisation data, the total cost of the four LNG power plants is estimated to be between $3.5 billion and $5.5 billion. A reasonable midpoint estimate would be approximately $4.5 billion.

In 2014, Engro Elengy Terminal – Pakistan’s first LNG terminal – was launched. The project included a jetty, a 24 km pipeline and a Floating Storage and Regasification Unit (FSRU). The terminal has a capacity of 4.5 million tonnes per annum, equivalent to approximately 600 mmcfd. Industry estimates place the cost of the jetty and short pipeline between $50 million and $100 million. Including the FSRU and associated infrastructure, the total cost is likely in the range of $150 million to $250 million.

The Pakistan GasPort Consortium (PGPC) Terminal – Pakistan’s second LNG terminal – has a designed capacity of 600 mmcfd. The project represents an investment of approximately $500 million, covering the cost of the jetty, marine works, a Floating Storage and Regasification Unit (FSRU), and pipeline infrastructure connecting the terminal to the national gas grid.

In addition to the terminals, a billion-dollar pipeline infrastructure was developed to transport RLNG from Port Qasim in Karachi to four RLNG power plants in Punjab. This system began with a 24 km pipeline from the Engro terminal and a 14 km pipeline from the GasPort terminal. Both were integrated into a significantly upgraded SNGPL network, which stretches roughly 1,100 km to Punjab. The total cost of this transmission network is estimated between $800 million and $1 billion.

To supply fuel for the LNG power plants, Pakistan signed two long-term LNG contracts with Qatar, both backed by sovereign 'Take-or-Pay' guarantees. The first agreement, signed in 2016, secured 3.75 million tonnes per annum (mtpa) for 15 years at 13.37 per cent of Brent, with an estimated cost between $16 billion and $25 billion. The second deal, signed in 2021, added 3 mtpa for 10 years at 10.2 per cent of Brent, costing an additional $10 to $15 billion. Together, these contracts represent a financial commitment of approximately $26 billion to $40 billion.

A decade into Pakistan’s $50 billion LNG initiative, spanning four RLNG power plants, two import terminals, extensive pipeline infrastructure, and long-term contracts with Qatar, the outcomes are sobering. Yes, the government overcommitted to ‘take-or-pay’ contracts without securing demand guarantees. Yes, the government failed to anticipate global LNG price volatility and underestimated the risks of market exposure. Yes, there is a disconnect between the Power Division and the Petroleum Division. Rather than delivering energy security, this ambitious initiative has resulted in a costly mismatch between supply and demand – now a multi-billion-dollar drag on Pakistan’s economy.

The writer is a columnist based in Islamabad. He tweets/posts @saleemfarrukh and can be reached at: farrukh15@hotmail.com