How will the country’s emerging gas crisis impact its overly gas-dependent fertiliser industry?
he fertiliser industry is the third biggest consumer of natural gas after power and the domestic sectors in Pakistan. It consumes a considerable amount of imported liquefied natural gas (LNG). According to the Economic Survey of Pakistan 2021-22, out of Pakistan’s total gas consumption of 3,565 million cubic feet per day (mmcfd), 735 mmcfd (20.61 percent) goes to the fertiliser industry.
The fertiliser industry uses gas not merely as fuel but also as feedstock. Going by the data given in the Pakistan Energy Yearbook 2020, the consumption of natural gas and LNG as feedstock is around five times higher than their use as fuel in the fertiliser sector.
The methane in natural gas combines with ammonia to produce urea fertiliser, a primary agricultural input for increasing crop yields. It is crucial not only to the country’s agriculture sector but also to its export base.
How will the country’s emerging gas crisis, which is becoming critical with each passing day, impact its fertiliser industry? Let’s first understand the nature of the gas crisis.
Pakistan’s gas crisis is the result of its dwindling local gas resources, increasing dependence on imported LNG, spiking global prices of LNG and the subsidies given to various sectors. Most of Pakistan’s gas reserves are located in Sindh and Balochistan. Major gas reserves in Balochistan have been almost exhausted and those in Sindh are fast depleting. No new substantial gas deposits have been found.
The country’s natural gas production decreased from 1,465,760 million cubic feet (MCFt) in 2014-15 to 1,316,635 MCFt in 2019-20, reads the Energy Yearbook 2020. To substitute for the depleting indigenous gas supplies, the policy makers encouraged import of LNG.
The share of imported LNG in primary energy supplies rose from 0.7 percent in 2014-15 to 10.3 percent in 2019-20. The stock of circular debt in the gas sector, which was Rs 350 billion in 2018, has almost doubled to Rs 650 billion over the last three years.
A recently launched study by the Institute for Energy Economics and Financial Analysis (IEEFA) termed inefficient cross subsidies as one of the primary factors behind mounting circular debt in the gas sector. The global spike in LNG prices resulting from the Russian war against Ukraine will further raise the prices.
Due to the country’s gas crisis, availability of feedstock is feared to be less during fiscal year 2022-23. This can obstruct the fertiliser supply chain. This will induce a reduction in fertiliser production and continuation of fertiliser shortage in the market. This crisis of fertiliser production and availability is likely to become intense in rabi 2022-23 as gas prices will rise further during the winter.
Low-priced domestic natural gas has traditionally been the mainstay of the fertiliser sector. Steadily diminishing local gas reserves will increase the fertiliser sector’s dependence on more expensive imported LNG. This will significantly increase the cost of fertiliser production with the end user having to ultimately bear the brunt of increasing prices of fertilisers.
Currently around 86 percent of the country’s fertiliser requirement is met through domestic gas production and the remaining 14 percent through imported supplies. Notwithstanding 1.9 percent increase in domestic production during FY 2022 (July-March), the shortage of fertiliser and a surge in its prices affected the farmers during the last khareef and rabi crops. Pakistan missed its wheat production target of 28.9 million metric tonnes (MMT) primarily due to low fertiliser off take and unfavourable weather conditions.
The fertiliser sector’s dependence on imported LNG will exacerbate the shortages and high prices of fertilisers. It will have harmful impacts on crops, poultry and livestock, posing serious threats to the country’s food security, industrial growth, employment and exports.
How to prevent this disaster? The previous government touted gasification of Thar coal as an alternative.
Coal gasification and coal liquefaction projects are notorious the world over for their dependence on huge subsidies from governments. They are neither economically viable nor environmentally sustainable.
In finding solutions to the ills afflicting the fertiliser sector, those who are at the helm of affairs should find sustainable alternatives to gas-based production of fertilisers. They will have to be open to innovative ideas and welcoming to modern clean and green technologies.
Pakistan also needs to develop a comprehensive fertiliser policy. The National Fertiliser Policy 2001, that gave investors expensive concessions and incentives has become obsolete.
The writer is an anthropologist and development professional