Energy journey
Pakistan’s energy journey, with few exceptions, is a textbook case for others of what to avoid. For example, despite having an extensive hydel potential of 60,000 MW, our energy mix remained mostly tilted towards oil and gas.
Even while the energy requirement continues to grow, we are already through with the peak production of 94000 BPD of oil and 4.3BCFD of gas. They are now respectively, at 75000 BPD and 3.4BCFD.
This is resulting in imports of 80 percent of our oil and 30 percent of gas. What is of concern is that with decreasing production, the exploration activity also appears to be waning; though, barely 35 percent of the country has so far been explored.
India drilled 647 wells in 2020 alone; while we drilled only 50 in 2021.
In view of the above, the supply versus demand gap continues to widen, which in conjunction with the factors discussed below, keeps on pushing at the pricing margins. As to the uphill journey ahead; while our per capita electricity consumption is 529 KWh, India and China are respectively two and nine times ahead of us.
Our gas imports are projected to grow up to 4BCFD by 2026. With the resultant energy imports, any major spike in the international energy prices can cause a serious crisis of balance of payments; especially when the economy lacks required sophistication and depth to correspondingly ramp up exports and bridge the gap.
India drilled 647 wells in 2020 alone; while we drilled only 50 in 2021
The situation becomes more alarming when analysed in the backdrop of our continued failure in reserves’ replacement of natural gas and oil, exodus of foreign E&P companies, ad-hocism and deficient commercial and operational agility.
Major Challenges
Based upon the above our salient energy challenges can be identified as follows: a) known oil and gas basins stand exhausted and new ones need to be discovered. However, the required professional capacity for that seems missing due to exodus of MNCs and associated factors. b) Sluggish exploration activity. c) Lack of capacity to manage. A major exhibit is not only the failure in augmenting indigenous gas production; but effectively managing its imports as well. This, primarily, requires management of only the “spot purchases” of LNG (30 percent of the total) only. How would the system respond when the imports would be higher; projected to be 4BCFD by 2026? e) Though we continue dabbling with the idea since the past 20 years, we do not maintain any strategic underground storages of oil and gas.
India already has such storages (37 million BBL), which it is now augmenting. f) In the post-Taliban takeover in Afghanistan I was expecting TAPI to be all over the media. But it is not; indeed a sad reflection of our awareness of our interests.
Topping all the above challenges is the absence of any professional tier/board or committee steering the energy sector. It is rather governed by officials having hardly any subject knowledge and no corporate management experience. We generally criticize “flawed policies,” however, the real culprit is the lack of capacity to execute.
A few glaring examples are: i) Failure of the unbundling of the power supply chain, ii) an absurd energy mix, iii) failure to realize any of the projects in which Russia is offering collaboration/support since 2012. iv) Tuwarriqui Steel Mill lying idle since the last eight years; over, relatively, trivial reservations with respect to its gas price. Conversely, commissioning of the mill can annually save around 1 billion USD in imports’ substitution in addition to several other benefits. v) Routine extended delays in national projects, ill-considered investments and high costs of projects due to capacity gaps or sheer apathy.
A comparison of a few multinational energy PSEs with some in Pakistan further accentuated the above gap. Out of 59 directors of six such MNCs (including Aramco, Petro China and Equinor), more than 40 have extensive relevant high-level experience. Even the rest have highly impressive profiles. In the Pakistani sample, out of 90 directors, less than 10 were found to have the relevant experience.
Resultant dynamics frequently generate intolerance and behaviors tantamount to “corporate McCarthyism;” which, in a penchant to control totally, strangulate independence and creativity. The results of the same can be observed in the pertaining balance sheets, burgeoning trade receivables etc.
What is to be done?
A comprehensive “Tabdeeli,” with the following measures, is the answer to all of our energy woes: 1) To benchmark the current status third party performance audits and capacity mapping of any three large energy PSEs. 2) An “advisory committee” of 15 world class energy professionals, who have successfully managed large value chains, needs to be instituted. This committee should be responsible for: a) selecting the BODs and CEOs of energy PSEs. b) Annual performance assessment of the PSEs c) attracting/strategizing FDI and guiding sector’s development. 3) Ministry may focus on policymaking and other regulatory functions as per the highly successful Norwegian model. 4) Proactive pursuance for optimal development of the already discovered hydrocarbon assets. This alone, with due guidance, can ramp up the country’s gas and oil production by 10% each. 5) Work-streams of senior experts on Exploration, Fields’ Development, Mid and Downstream and FDI (Foreign Investment) may be constituted by the above committee to aggressively pursue for hydrocarbons and their earliest monetization. 6) An SPV (Special Purpose Vehicle) may be constituted for realizing the strategic oil & gas storages. 7) As to FDI; the above committee may be tasked to expeditiously conclude the required discussions in progress with the Russian companies and propose action plans for approval. 8) Continuing to provide piped natural gas to every household is simply unsustainable with depleting reserves, increasing population and escalating prices. Alternate, economical solutions, is the answer. This would also help in reducing the current fiscal drain 50 Billion PKR/ Year in lieu of UFG losses. Therefore, bio-methane (potential: 1000 MMSCFD) projects may be launched for absorbing domestic and CNG load. It would require medium sized low cost fast track off-grid projects; preferably based on modular plants. This would reduce energy imports and prices. 9) The indigenous coal can be processed and mixed with imported coal to reduce cost. India is already on an aggressive drive in this direction. Similarly, Pakistan is consuming 800 MMSCFD of natural gas for fertilizer production; therefore, switching to coal-based fertilizer can be another source of reducing costs and prices. 10) To add another revenue stream to their portfolio, SNGPL and SSGCL may steer towards diversification through possible synergies (execution, Operation and Maintenance, Project Management) of other projects/ventures in Pakistan and abroad, both.
I firmly believe that the above suggestions have all the potential to radically reduce gas prices and give a boost to our economy. Of course, the route to their successful implementation, especially in this era of knowledge economies, only leads through the path of meritocracy and professionalization of the entire decision making and execution ladder of the energy sector.