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South Asia switches to expensive diesel on LNG crunch

Higher enegry costs pose a particular burden for developing economies, such as Pakistan and Bangladesh, in their fight against climate change

By Agencies
March 03, 2022

KARACHI: Pakistan and Bangladesh are turning to expensive and dirty diesel fuel to generate electricity as the nations struggle to secure shipments of liquefied natural gas amid a supply crunch intensified by Russia’s invasion of Ukraine, Bloomberg reported on Wednesday.

Pakistan’s diesel-fired power generation rose to the highest level in at least seven years in January, while LNG-based output dipped to the lowest in almost two years, according to government data compiled by Arif Habib Ltd.

The two fuels each generated about 7 percent of the South Asian country’s electricity in January. That’s bound to continue as Pakistan has failed to find replacement LNG cargoes after long-term supplies were forced to cancel deliveries.

“LNG supply looks tight at the moment and LNG prices were expected to remain elevated even before the invasion of Ukraine,” said Simon Nicholas, an analyst at the Institute for Energy Economics and Financial Analysis. “It’s likely Bangladesh and Pakistan will need to continue to use more diesel and oil in power generation.”

Energy prices -- already elevated amid a supply-demand imbalance as the w world recovers from the pandemic -- have surged following the invasion and sanctions on Russia in response. Higher costs pose a particular burden for developing economies, such as Pakistan and Bangladesh, in their fight against climate change.

The issue also highlights a growing problem with depending too much on LNG, which has suffered from a shortage as demand has largely outstripped supply over the last few years.

It threatens to boost power costs across South Asia, increase government subsidies to support power payments and hurt the economic recovery in Pakistan and Bangladesh. Pakistan’s fuel costs doubled in January, compared with the same period a year ago, data from Arif Habib show.

Diesel is the most expensive fuel for power generation in Pakistan, costing 14 percent more than fuel oil and 55 percent more than LNG-based generation, according to January data by the National Electric Power Regulatory Authority. Diesel use also comes as the nation’s refineries have been filled with fuel oil, meaning that there are other options for power, said Tahir Abbas, Arif Habib’s head of research.

LNG Imports Liquefied natural gas imports into India, Pakistan and Bangladesh are set to hit a low point in February due to unaffordable spot LNG prices, according to BloombergNEF.

A total of 39 cargoes arrived in January, the lowest since February 2019. BloombergNEF estimates the share of spot volume in South Asia’s total LNG imports fell to just 18 percent of January supply, down from 25 percent in the previous month.

Bangladesh’s LNG supply crunch started after a mooring line at Summit Group’s floating storage and regasification unit broke down in November, said Mohammad Hossain, director general of Power Cell, a unit of Bangladesh’s Ministry of Power, Energy and Mineral Resources. Bangladesh extended downtime for compressed natural gas stations.

Pakistan’s growing gas shortage this winter forced residents to turn to cylinders in Karachi and authorities offered discounts to make users switch from gas to electricity for heating. The nation’s domestic gas production has fallen by about a fifth over the past two years, making LNG supply even more crucial.

Diesel is used only when there are constraints and largely for system stability and reestoration in instances of blackouts and outages, Pakistan’s energy ministry said in a response to questions. There is no requirement for diesel fuel for power generation until June, it said.