LNG in Pakistan is ‘Not Cheap, Reliable, or Clean’

Key Findings By the Institute For Energy Economics and Financial Analysis (IEEFA) in Its Recent 7-Page Factsheet Titled “Debunking Common Myths about LNG in Pakistan“:

LNG is not cheap in Pakistan: Imported LNG costs have recently been up to 8x more expensive than domestically produced gas. It says: The average price of domestically produced gas in Pakistan is between US$3.50-4.00 per MMBtu. In recent tenders, Pakistan paid ~US$30/MMBtu for LNG. At that price, one cargo costs US$99 million. Pakistan buys 44% of its LNG on a short-term basis from the international spot market. Since LNG imports began in 2015, gas sector circular debt—which describes a buildup of non-payments throughout the supply chain—has skyrocketed to US$3.5 billion (PKR 650 billion), with some estimates as high as US$7.5 billion (PKR 1.5 trillion). IEEFA estimates that growing LNG imports in Pakistan could raise the country’s LNG import bill to more than US$32 billion by FY2030, up from just over US$5 billion in FY2021.

LNG is not reliable: Suppliers have not delivered contractually obligated cargoes at least 11 times in the last two years, often leaving the country without fuel or power.

LNG is not clean: Pakistan’s gas network leaks huge volumes of methane, a compound more than 87x more harmful to the climate than CO2.

The Fact Sheet says that:

Plans to expand LNG dependence have turned into an economic and energy security disaster. Today, natural gas provides 43% of the country’s energy needs and is used in various sectors of the economy. The power sector is the largest consumer of natural gas (32%), followed by the residential (24%), industrial (19%), and fertilizer (19%) sectors.

However, domestic natural gas supplies are rapidly declining. At current rates of production, the country has less than 13 years of natural gas reserves remaining. As a result, energy sector planners have turned to liquefied natural gas (LNG) as a replacement fuel. In Pakistan, however, the opposite is true.

High LNG prices create huge financial problems for the gas system for several reasons:
1. A high share of gas is leaked and therefore cannot be sold;
2. Cross-subsidies are insufficient to recoup LNG costs;
3. Politically motivated decisions to keep gas prices low
create large government subsidy burdens.

It further says that LNG imports in Pakistan have created a huge financial burden on the energy sector and the economy: As more LNG is injected into the gas system, problems surrounding financial sustainability, energy security, and environmental degradation are likely to get worse. Solutions to these problems may not be simple given the complexity and interconnectedness of Pakistan’s gas sector issues. Problems cannot be solved overnight. However, the country can take a range of actions in the near, medium, and long-term to mitigate the unsustainable growth of LNG demand.

The Factsheet points out some recent LNG Developments in Pakistan:

Imports reached 7.4 million tons in 2020, and the government expects LNG demand to grow rapidly. The share of RLNG in the country’s total gas demand has risen to 26% in FY2020, up from just under 8% in FY2016. There are now two existing regasification terminals, both located in Port Qasim: (1) An offshore terminal owned by Engro Elengy, with a capacity to import 4.8 million tons of LNG per annum (mtpa); (2) An offshore terminal owned by Pakistan GasPort Consortium Ltd. with a 5-mtpa capacity. The main players in the LNG supply chain in Pakistan include: