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Pakistan gagging for more gas

Declining domestic natural gas production and delayed import schemes could cause problems

Since the first liquefied natural gas import terminal in Pakistan started up in 2015, at Port Qasim in Karachi, the nation's leaders have been making grand claims about how quickly LNG might solve Pakistan's severe and chronic energy shortages. A second LNG terminal came on stream in November 2017, after a few months of delay, and several others are in various stages of development.

However, expectations that LNG imports might grow to 30m tonnes a year by the early 2020s—which would make Pakistan the fastest-growing LNG market ever—are today looking over-optimistic. Dependent on natural gas for around half of its primary energy, Pakistan has for well over a decade suffered a supply shortage severe enough to constrain its economic growth.

Successive governments have strived to boost gas supply by incentivising domestic production, and with efforts to import gas by pipeline and LNG. They've also acted to constrain gas demand, with a ban on new industrial and commercial connections imposed in 2011, and a ban on the issuing of licences for new compressed-natural-gas refuelling stations imposed in 2008.

The crisis came to a head in 2015. Gas-fired power stations were left without enough gas, CNG refuelling stations had to be shut down, industries such as fertiliser and textiles were left without energy and feedstock, and costly oil imports soared. Almost all the oil that Pakistan consumes is imported and around a third is used to generate electricity due to the chronic shortage of gas.

LNG to the rescue

LNG imports have helped to make a difference. GDP growth had been languishing at around 4% a year, but in fiscal 2016/17 it rose to 5.3% and the International Monetary Fund expects an acceleration to 7% a year by the 2020s. Much will depend on how quickly Pakistan can alleviate its still-severe gas shortage and a consequent electricity supply-demand gap estimated at 6 gigawatts.

The Oil & Gas Regulatory Authority (OGRA) forecasts an inexorable decline in domestic gas production. Meanwhile, the two international pipeline projects that could bring gas to Pakistan in large volumes—the 750m-cubic-feet-a-day Iran-Pakistan (IP) pipeline and the 1.32bn-cf/d Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline—are still confronting a variety of political and financial obstacles.

OGRA accepts that "IP and TAPI seem to be taking their time" and says that "in the coming five years, LNG imports seem to secure the maximum contribution in the energy mix".

The trouble is that the two terminals that have been completed so far, both of them based on floating storage and regasification units, have benefited from government support in the form of financing and/or off-take guarantees, whereas the government would prefer future terminals to be entirely private ventures.

In February 2017, it seemed that the first such terminal would soon be realised when Qatar Petroleum, Total, Mitsubishi, ExxonMobil and Höegh LNG announced they were forming a consortium with Turkey's Global Energy Infrastructure Limited (GEIL) to develop what would have been the nation's third LNG import terminal, again based on an FSRU.

Dividends hit

But by the autumn of last year the consortium was on the verge of break-up and in November Höegh informed GEIL it was terminating its FSRU charter agreement. The company is now looking for alternative employment for its ninth FSRU, due for delivery later this year. Its board has decided to reduce dividends because of project delays in Pakistan and elsewhere.

Several other proposed projects have received licences. The Energas project brings together a conglomerate, a textiles company and backers of a power company who want to arrange gas supply for their power plants, factories and textile mills. The aim is to get an FSRU-based terminal up and running in Port Qasim by next year.

The Bahria project, being pursued by a charitable trust, aims to have an FSRU-based terminal operating on Charna Island, about 45 km west of Karachi, by the end of 2019. There have been reports that an FSRU will be selected this summer.

It's important to remember that while Pakistan's first terminal was implemented in just 11 months, from contract signing to first gas flow, the country had been trying to import LNG since 2005. As the FSRU providers know well, putting together LNG import projects remains a risky business.

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