Written By Munawar Baseer Ahmad
The ‘natural gas crisis’ our nation faces today has clearly been projected in the National Energy Plan and its 25-year projections (2005-30) prepared in 2004-05. It is clearly evident that while adequate projections were made and plans formulated as part of the National Energy Plan, approved in February 2005, the award of contracts and implementation got delayed and held-up inordinately. The result: the gas crisis is now very much a reality, with no immediate solution in hand. The pertinent questions remain as to why those at the helm of affairs failed to fulfil their responsibility? Why have requisite contracts not been placed and implementation got delayed?
The fact of the matter is that there are discovered fields of about 500 mmcfd and not 625 mmcfd in the country. Most of these fields – of around 350 mmcfd — are located in Sindh, while the rest in Balochistan and Khyber- Pakhtunkhwa provinces. These fields have been capped for more than five years and their development contracts not awarded. The Oil and Gas Development Company Limited (OGDCL), the Pakistan Petroleum Limited (PPL) and few others have not put the development work on track. The OGDCL issued tenders for these fields, including Pashaki Kunnar Deep, Tay and Dars several times, but cancelled them as the managing directors of this state-run entity kept on changing.
The real scenario of gas shortages, to say the least, is frightening. The supply- demand gap varies from about 800 mmcfd in summers to 1,500 mmcfd during winters. What should be a matter of more concern is the fact that the government and state-run institutions failed to evolve an effective strategy. Even the Mashal LNG import project now stands cancelled due to gross mismanagement and the rule of “vested interests.” The Mashal LNG would have added 300 mmcfd by 2009-2010. Together with new developed fields, this would have fully bridged the supply-demand gap.
A clear solution for Gap Coverage Strategy was also provided in the 2005 National Energy Plan, which among many requisite projects and essential actions for the hydel, coal, alternate energy sectors, also proposed to complete interconnection among the gas producing fields in the South and North of the country to the Sui Southern Gas Company Limited-Synthetic Natural Gas (SSGC-SNG) network by 2008-09 for an addition of about 500 mmcfd.
Other proposals included award of Mashal LNG in 2007-08 to bring on-line phase-I, fast-track floating storage and re-gasification unit (FSRU) by 2009-10 for 300 mmcfd followed by a land-based terminal for 500 mmcfd by 2011-12. It also called for the launch and award of LNG-II by 2009 for an addition of 500 mmcfd by 2012-13 and fast-track implementation of FSRU-based private sector LNG import projects for 300-400 mmcfd addition by 2010-11.
Finalisation and award of Iran-Pakistan (IP) or Turkmenistan-Afghanistan-Pakistan-India (TAPI) transnational pipelines by 2007-08 to add 1.2 bcf by 2014-15 was also part of the proposals, which could have placed Pakistan in a comfortable position up to 2017 for its primary as well as end-use energy requirements.
The above projects would have added 2,300 mmcfd to the network and provided for a viable coverage of the projected demand-supply gap up to 2013-14 and onwards, up to 2017 with the implementation of the Iran pipeline by 2014-15. Unfortunately, due to the complacency and lack of competent management, the requisite projects have not been finalised or awarded. There has also been a total absence of awareness and understanding of the urgency, and need to finalise and award contracts by Ministry of Petroleum and Natural Resources. Consequently, none of the above projects have come on-line nor will they do so in the next two years. The gas crisis will thus continue to worsen, with the Petroleum Ministry still being clueless on a crisis management plan.
A few misconceptions
While assessing the status of the Iran pipeline and views of various donor agencies, I believe it is essential that a due analysis should also be provided to place it and TAPI projects in the correct perspective. Over the past decade or so we have seen many studies, reports and multiple claims by various sectors as well as the government on the successful achievement and signing of agreements.
It is claimed that the initial 1 bcfd – 1.2 bcfd gas will generate 5,000 MW of “cheap” electric power. There are several other misconceptions on the proposed IP (formerly Iran-Pakistan-India) pipeline, including that the Iranian gas at current crude price of $100-110 per barrel will cost $11-14 per mmbtu. The current price of gas to industrial users in Pakistan is $4.39.
It is also repeatedly claimed that the pipeline will take three years to complete, which is improbable as the route survey, feasibility, financing, awarding of contract will take at least 3-4 years, with an additional 3-4 years for construction and commissioning. So we cannot expect to have the first gas before 2017.
The Iran pipeline is being projected as the panacea for Pakistan’s gas and power shortages. This is far from reality, as even now there is a shortage of about 800 mmcfd in summers and 1.5 bcfd in winters. The IP pipeline, if it came on stream today, would only cover the existing gas shortage, and not provide any gas for the perceived 5,000 MW of new power generation. By 2015 the shortage will exceed 2.5 bcfd, with no solution in sight.
The IPI was projected to be economical if India was included. This misconceived concept was presented by various quarters, including Inter-State Gas Systems Limited (ISGSL), and I can confidently say the “ill-informed” so-called experts in the Petroleum Ministry. Consequently the project was made a hostage to India’s manipulations, which used it as a bargaining tool to get a better civil nuclear deal from the United States and successfully delay the project for five years.
Failure to import LNG
The concept of LNG imports was conceived as part of the National Energy Plan-2005 to provide for fast-track supply-demand gap coverage for natural gas. SSGC pioneered the efforts and formulated the Mashal LNG project. The project‘s Gap Coverage Strategy clearly shows that timely projection and plans were made, with a focus on LNG imports in the short and medium term, while the transnational pipelines (IP, TAPI) were projected to cater for the longer term.
The Petroleum Ministry, SSGC and Oil and Gas Regulatory Authority (OGRA) have failed to facilitate several private sector initiatives by firms, including Engro-Vopak, Fauji and Pakistan Gas Port for fast-track LNG import. Even now various anomalies in the LNG policy have not been addressed, nor have the Third Part Access (TPA) rules of the LNG policy, issued. The Petroleum Ministry and OGRA need to realise the crisis situation and move expeditiously so that the private sector LNG projects can move to maturity. Also, the Mashal LNG project must be re-launched on war footing and a doable model as per current global LNG markets dictate. Pakistan cannot expect the global LNG supply chain to adapt itself to Pakistan’s “fuzzy model” for at the most 7 mtpa (1,000 mmcfd) in the next five years, wherein the total world market exceeds 150 mtpa.
The original request for proposal (RFP) for Mashal LNG was floated on February 17, 2005 as an integrated project. Out of 7 pre-qualified bidders, only two bids, namely from Shell Gas and Power, and 4-gas, in partnership with Vitol and Fauji, were received. The most compliant proposal of 4-gas was recommended for an award after a robust due diligence and evaluation of proposals by SSGC, assisted by the world class consultants “Poten and Partners.”
In the face of a crisis situation, the Mashal LNG project award should have been processed in 2007-2008, which would have enabled the set-up of the fast-track option in phase I through a FSRU in Port Qasim Authority, Bundal and Khiprianwala islands. This would have provided at least 300 mmcfd gas in 2009-2010 and helped to cover the current supply-demand gap. Subsequently in phase II, the selected company was to put-up the full land-based terminal for 500-1,000 mmcfd LNG supply.
It is amply evident that while bureaucratic wrangling by various ministries to recast the LNG project and claims of “billion dollar losses” were thrown around, the real issue of gas/LNG supply crisis was sidetracked. It has been incorrectly projected in the media by the Petroleum Ministry that the Supreme Court cancelled the Mashal project due to irregularities in the tender process. The real irregularity was committed by the ministry by unbundling the Mashal project in attempts to award the LNG supply contract to a third party in violation of the SSGC RFP and Public Procurement Regulatory Authority (PPRA) rules.
LNG supplies through LNG-I and LNG-II were an essential part of the Energy Gap Coverage Strategy formulated by the undersigned in the 2005 National Energy Plan in the timeframe of 2009-12. A total of 1 bcfd of natural gas through re-gasified LNG (RLNG) was envisioned to supplement the local supplies. Without such supplies, already delayed by over two years, we are clearly headed for acute gas load shedding, which will have an even worse fall-out than the power load shedding.
The way forward
The former ministers and secretaries of Petroleum Ministry as well as MDs of OGDCL, SSGC and others, must be called upon to face the nation for the dereliction in their responsibility. The country today is faced with a spiralling gas shortage of about 1,500 bcfd, which has resulted in either total shutdown of hundreds of small industries, while others have to endure 3 to 4 days of gas curtailment. The economic fallout of this is the loss of tens of thousands of jobs, as well as loss to exports of over $1 billion, as projected by various trade bodies.
The time is now for the government to take urgent and robust steps under a ‘crisis management’ plan to resolve all issues and assign the requisite contracts for fast-track implementation. Concurrently, the National Energy Plan of 2005-2030 must be revised to lessen our reliance on natural gas and oil and substitute them with hydel, local coal and alternate energy solutions.
To undertake the review and revision of the National Energy Plan, it is essential that the National Energy Authority (NEA) be set-up as a statutory body for planning and preparing an integrated energy plan. The NEA would also monitor and oversee implementation of projects in line with estimated energy demand requirements as well as sectoral end-use energy, to ensure that the nation is not faced with such a crisis in future. There can be no further delays, else the country’s economic and social well-being as well as our sovereignty will be at stake. We must rise to the challenge otherwise our future will be compromised at the hands and whims of international donors and other power brokers that are indeed planning to plunge Pakistan deeper into a mess, creating social unrest, chaos and anarchy.
The writer is CEO of EMR – Consult and a former managing director of SSGC, PEPCO.