The last 12 months have seen 3 new LNG consumers added to the growing mix of converts to this cool energy form – Egypt, Jordan and Pakistan. All have implemented quick FSRU solutions in order to get into the LNG game and all of them are pretty classic baseload markets with otherwise pretty predictable, and massive needs.
The LNG world has been a harsh world for a buyer of the commodity for the 10 years up to 2015. Laying your hands on the cool stuff was deemed to be almost impossible as prices were sky high and the Japanese suction sound drowned out all fringe developments.
This is different now as the world goes into LNG oversupply mode and sellers start to look at options they have not even looked at with a smirk just 18 months earlier.
Focus on Pakistan.
It is the 21st gas consuming nation on this planet and its sixth most populous country. It’s a gas producing nation and has enormous potential for shale and tight gas. Despite the upstream vigour, the countries reserve replacement ratio since 2005 is either flat or outright falling. Whatever the potential in the ground, it seems like the country cannot materialize it.
But it would need to urgently. There are gas and power shortages that cripple the economy. Gas is rationed in a country that is – with about 275,000 vehicles running on CNG – still one of the biggest users for methane as a vehicle fuel in the world. This makes the pro rata of CNG vehicles go down as due to the gas shortage, the government even discourages CNG as a vehicle fuel now. It’s a pretty clear policy of the government to phase out CNG altogether.
The country’s total energy balance makes it half as big as the UK and 32% of that comes from Natural Gas. But the constant shortage of gas also has a negative effect on GDP. Utilities burn Fuel Oil in order to shore up power systems and it also imports lots of refined products as the refineries of the country can’t cope with demand.
Load shedding is a major issue in the country and affects all parts of it now. Fertilizer plants cannot operate because of the constant load shedding and make huge losses which they blame on the ineffective government and broken utilities. A couple of lawsuits are running right now.
As of today, Pakistan has a shortfall of between 20-25 bcm per year. That’s at least what the numbers say but it can safely be assumed that if there would be reliable gas supply in place and people would see it coming forward, gas use would go through the roof. And as Pakistan cannot cover its gas shortfall by itself – it needs to import.
With those demand figures and big gas exporting nations not super far away, it’s tempting to look at pipelines and there are two proposals that have produced lots of waves by media and other. The IP pipeline from Iran to Pakistan and the TAPI project which would bring Turkmen gas through Afghanistan to Pakistan.
Both projects have been around for a while but failed to materialize due to numerous obstacles. Most importantly, securing a high-pressure tube over thousands of kilometers of territory – where lots of people hold a grudge and like to blow things up as a result – is certainly not the easiest venture. Maybe the visit of the Iranian President Rohani will change something here. The will to act seems to be unbroken and Iran no doubt has the capacity to deliver the goods.
Pipelines are still not easy to run through such wild lands as is Baluchistan and even with the pipeline in place, odds are that the country would need even more gas which is why Pakistan has turned its gaze towards LNG already quite a while ago. But here again, the going was all but easy.
They tried 10 years ago with the Mashal project which was halted.
4gas ran a project that was supposed to be integrated but that was subsequently split in two where 4gas would have to take care of the building and running the terminal and GDF-Suez was charged with getting supply. This project was halted by the Supreme Court in 2010.
There were tenders again in 2012 that once more got stuck in the administration noodle soup.
Another problem is also the attitude of the government which through OGRA dictates prices the gas utilities can charge which forms a ceiling at which an LNG seller can sell and this ceiling was always too low for comfort. OGRA also requires very stiff supply guarantees and usually also a right to first purchase on all gas which is very hard to swallow as it automatically makes all other customers interruptible, and hence lessening the value of the service.
They also require a supply guarantee which in today’s market should not be hard to organize. However, they always look at floating schemes and those plants are very hard to run on a baseload basis. When a tanker comes and the tanks are not really, really empty – you are toast. Conversely, if the tanks run low and the next cargo does not show up for whatever reason – it’s blackout time for lots of folks.
So far, only one Floating Storage and Regasification Unit is operating and its too soon to call in the operational data. The first Qatari cargo calling on Port Qasim has been processed so we all watch how this peters out. Only Excellerate has engaged so far and it seems that they did not have to bother with those many guarantees as today’s developers are required to. They would not have come otherwise.
Let’s be serious folks. FLNG is an admirable technology and it most certainly does wonders in some places with itsy, bitsy needs of LNG like some peak shaving in Kuwait or in Brazil but Pakistan is no such case. But as we learned lately, even Kuwait is having a change of heart and builds an onshore terminal now.
Pakistan is a country with massive, yearlong needs and a huge market that will grow at breakneck speed once customers can be sure that the gas stays on. The thing to do is a big baseload, onshore terminal such as you find them in most other big economies. Only those can assure to deliver what Pakistan needs as they provide the operational flexibility and comfort needed by such a big market.
There are some storage sites, the closest of which is Nawakshah which can be used to help stabilise send out profiles and most of the pipeage is there to bring the gas as far north as Lahore so some dab of compressing power here and there might just do but much of the demand is in and around Karachi anyhow.
It would be a shame that a country that is among the biggest planetary users of CNG stopped doing so just because there is no more gas.