Gas crisis

Editorial Board
Wednesday, Oct 13, 2021

Amid a looming gas crisis, it comes as a further shock that Pakistan LNG did not receive any offers in a tender seeking eight liquefied natural gas (LNG) cargoes for delivery till January 2022. This raises concerns about a potential power crisis in the country. Pakistan has been struggling with energy shortages and soaring power prices for the past couple of years. In addition, spot gas prices are also likely to surge during the upcoming winter months when demand for fuel rises around the world in the last quarter of every calendar year. Pakistan is facing a soaring overall energy bill especially as our currency is on a depreciation spree due to a lack of appropriate fiscal policies and monetary control. Spot LNG prices are at a record high level as China and India with the two largest populations in the world – nearly 2.8 billion people – have also been experiencing power shortages.

Pakistani power managers have not been alert to the changing realities of power dynamics, as they issued the latest tender just last month with offers due by Oct 11. As the deadline has passed, the country finds itself in a fix with no offer in hand. The tender documents that the government of Pakistan issued expected the offers to remain valid for at least 15 days. Pakistani officials who floated the tender failed to realise that given the daily price fluctuations the validity period of two weeks was a bit too long, making the bidders reluctant to submit offers. Though Pakistan imports most of its LNG through long-term contracts, the country still needs to import spot cargoes to meet domestic gas demand. Now the situation is that Pakistan faces a considerable shortfall of gas each month. The situation is getting delicate as the government’s inability to ensure sufficient gas pressures in the pipeline will lead to even more misery for consumers in the winter months, what with having to then increasingly depend on the use of electricity for commercial and domestic purposes – thereby further aggravating the power crisis in the country.

Gas consumption in Pakistan more than doubles in the winter months. Now all eyes are on the early operationalisation of the second-term contract with Qatar for additional LNG that may partially bridge the gap. What the government needs to do is put in place an effective demand management system. That is not possible unless the government is able to shift consumers to surplus power at cheaper rates. As things stand now, the country's power managers appear to be unable to fathom the gravity of the impending crisis. If whatever gas we have becomes available for power generation and industry – including huge supplies for the fertilizer sector – domestic consumers will suffer greatly. As power generation by LNG has become costlier than by furnace oil, more furnace oil supplies mean more burden on the national exchequer in larger import bills. The CNG sector has also lost out with residential and commercial sectors and that in turn has resulted in the closure of CNG stations and reduced supplies to domestic consumers. Though the government wants us to believe that there would be no big challenge, this gas crisis seems to be looming large. The government’s priority must be to divert more gas to the residential sector rather than depriving them of the fuel so vital in winter months.