Natural gas is one of the cleanest fossil fuels (compared to coal, diesel or fuel oil) and, if burned in an efficient natural gas power plant, it produces 50-60% emissions less CO2 compared to new coal-fired power plants. This, along with the profitability of the electricity produced from it, made natural gas the power sector’s best bet as a transitional fuel until 2030.
For countries like Pakistan, which are struggling to finance the much-needed transition from fossil-fueled production to renewable energy production, production fueled by natural gas – a relatively cheap source of energy and clean – provides much needed respite at the moment. being. Thus, in search of advantages linked to the production of electricity from LNG, the previous government opted for long-term LNG contracts with the Qatari government. In addition, several LNG-based plants were installed during the tenure while some were transferred to LNG, including Rousch, the Nandipur power plant and a plant near Lahore that ran on diesel for 14 years.
To date, Pakistan has seven long-term LNG contracts including five with Qatar, one with Italy and one with a trader. Pakistan has a capacity of 12 cargoes per month, so the rest of the five cargoes are purchased on the LNG spot market to meet demand.
The government recently made the most expensive purchase since importing LNG began in 2015. Pakistan LNG Ltd (PLL) accepted bids for four spot LNG shipments in September ranging from $ 15.2 per MMBtu at $ 15.5 per MMBtu. Meanwhile, eight offers for September and October have already been dropped by PLL with offers ranging between $ 13.79 and $ 13.99 per MMBtu from Qatar, followed by some offers close to $ 16 per MMBtu with an offer for PSO at $ 20 per MMBtu.
On the other hand, last year, three-year long-term contracts were available for $ 4 per MMBtu as a private company named “Trafigura” sent a written offer to the government of Pakistan, offering LNG cargoes. for $ 4 per MMBtu; he was also willing to convert five long-term Qatar LNG contracts to $ 4 per MMBtu in a practice called arbitrage. Importantly, the fossil fuel market collapsed last year due to Covid-19 and associated lockdowns, resulting in unprecedented price drops.
Pakistan is currently paying $ 10 per MMBtu for its Qatar LNG today and we had a written offer to convert it to $ 4 per MMBtu which would have saved $ 100 million per month or $ 1.2 billion. dollars a year or $ 3.6 billion in three years, which is more than what we get from the IMF.
While the Treasury would pay an additional $ 25-30 million per shipment for this expensive purchase, the effect would not be limited only upstream; electricity production would also be affected. Per unit of electricity produced from it would cost around 12 to 13 cents compared to 7 to 8 cents per unit cost of electricity produced from LNG purchased under long-term contracts with Qatar ( the cost depends on the efficiency, the nature of the plant and how the plant is operated).
It is important to note that Pakistan guarantees $ 6 per MMBtu to companies exploring natural gas in the country, so last year a rational decision would have been to suspend the purchase of natural gas from local companies and the import from the market exploit the price differential. This has not been done.
Globally, countries are opting for long-term contracts for LNG supply to ensure price stability and continuity of supply, but this government has repeatedly tried to play the market – and failed. In Pakistan, the current regime initially criticized the whole logic of diversifying the country’s energy mix, in particular the switch to LNG from day one (although they later recognized this). In addition, it has been claimed that huge bribes have been received against deals with Qatar and that opposition leaders have been arrested while nothing substantial has come out of it yet – a bit like the rest of Naya Pakistan. Then it was said that instead of installing LNG-based power plants, the PML-N government could have opted for renewable energy production as the cost of it has decreased.
Although the cost of installation and the cost of producing electricity from renewable sources have declined significantly over the decades, it is important to note that renewable energy is an intermittent source of energy and does not provide of base load. In cases where renewables can provide a base load, the unit cost of electricity is incredibly high. In addition, natural gas-fired power plants lay the foundation for renewables in the system and provide much-needed flexibility, other than meeting peak load requirements in the system.
Questions were also raised by the ruling party about the capacity additions; this was called immediate corruption committed by the previous government, failing to realize that power systems are designed with the country’s peak demand in mind and not average demand. In addition to peak demand, a reserve margin is maintained to increase the reliability of the overall system.
All the mismanagement and incompetence in the energy sector – and even otherwise it is happening in the country – if not addressed, is a heavy price that will have to be paid by the Pakistani people. It is the price of beauty.
The writer is a political activist and research analyst.
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Twitter: @ êtrekamil