The looming energy crisis
From 2004 onwards, the price of oil started soaring in the international market, and for the first time in October 2004, oil prices crossed the benchmark of $50 per barrel. The price continued to fluctuate but kept moving up each year and in 2007 briefly crossed $100. For the past few days it has been hovering around $110 per barrel.
The oil industry has been plagued by two main deficiencies viz. a drop in exploration activity following the economic slowdown of the mid-1990s, and global refining capacity that did not keep pace with the rise in demand in China, India and the Far East beginning 2000. Yet, both Opec and the vertically integrated oil industry have displayed no interest in increasing the output, which needs additional investment in exploration and at last 4-5 years to build additional refining capacity.
All oil-consuming countries, particularly third world countries, have suffered due to the consistently rising demand-driven cost of energy. Pakistan is one of the countries worst hit by the rise in price of energy. The domestic energy generation sources are restricted to hydropower, limited production of oil and gas, and negligible use of coal as the input for power generation. Even the conversion of cement industry to coal required import of coal from Indonesia and some other countries.
Figures I and II below give the position of domestic demand and supply for electrical energy:
According to the PPIB website, during 2008 Pakistan would be short of electricity supply to the tune of 1,457 MWH. This supply gap does not take into account the fact that, during the day, in the peak consumption hours this gap increases well beyond 1,457 MWH. Given this supply shortfall, and few choices for plugging this gap with indigenous energy resources, the planned and projected growth in GDP appears highly unlikely.
If Pakistan chooses to rely on fossil fuel to generate electricity it would be a constant burden on the countrys foreign exchange reserves, and due to continuously increasing price of oil, our exportable surplus would become progressively more uncompetitive, goods for local consumption would become costlier, some industries could face closure/bankruptcy and the country could face economic stress on a wide scale. It is therefore imperative that Pakistan finds workable remedies to the looming energy crisis and such remedies encompass practical solutions to facing up to the problems arising out of growing population and the growing energy needs to support reasonable GDP growth.
For the last 10 years, Pakistan has been importing crude oil and refined petroleum products to generate electricity, besides meeting the increasing demands of its expanding transport sector. The energy being consumed in transport is beyond the scope of this article, and is a subject that should be dealt with separately. Coming back to energy, since all energy-types are inter-convertible, there can be several possible solutions in a comprehensive plan for utilising alternate sources of energy.
The basic idea which I would like to promote is that we must develop a plan which does not impose a constant burden on the countrys foreign exchange reserves, the cost of implementing that plan is not inflated by the depreciation of the rupee, and the dangerous correlation between operating cost of the power sector and future increases in the prices of petroleum products is rapidly contained within manageable limits.
The alternate energy sources need to be explored.
Nuclear (civil) energy: KANUPP was established with the help of the Canadian government in the 1960s, but due to the changed geopolitical realities, expansion of Pakistans nuclear energy base for civilian uses seems unlikely. Although Pakistan has already achieved its goal of assembling nuclear weapons via the uranium enrichment route, and may not need more fissile material, yet the possibility of reprocessing the spent fuel from civil nuclear power units to extract plutonium from the spent fuel may become a matter of concern for those powerful lobbies that advocate non-proliferation and no longer rely on Pakistan since, with the passage time, the trust deficit has grown. The other disadvantage of civil nuclear energy might be the disposal of radioactive material and a constant flow of fuel rods and the required spares to operate the unclear power stations. These factors will again be a burden on the scarce foreign exchange reserves.
Natural gas exploration: Pakistan still has huge untapped gas reserves. If we allocate more resources to their exploration there is a possibility that in the near future part of the energy resource gap may be met from new reserves. To achieve this objective, the government has to revise its gas pricing policy including but not limited to upward revision of the well head prices. The current gas prices and the limits they place on increasing the profitability of this sector would not attract any reasonable amount of investment, whether local or foreign, since the cost of exploration has gone up substantially and current well head prices do not justify further investment at the current rate of return. The other factor discouraging exploration of new gas reserves, which would continue to haunt us, is the law and order situation in most of the areas where gas finds can be a possibility.
Natural gas Import: For quite some time, Pakistan has been planning to import gas through cross-border pipelines. This was never a great possibility but our planners continued to toss this idea around, and gave people false hopes. Any gas pipeline from Turkmenistan must pass through Afghanistan. Laying a gas pipeline through a war-torn and hostile Afghanistan never seemed more than a myth.
Laying the gas pipeline and its maintenance and management through that territory always defied imagination considering the fact that, for the last so many years, Pakistan could not manage and protect its gas pipelines even in Balochistan. Yet, the planners continued to sell the idea of a pipeline from Turkmenistan.
The import of gas from Qatar too had a snag, which was never highlighted. This pipeline was to be laid on the (deep) sea bed, for which global experience has been pretty uneven, limited, and shows this transportation method to be uneconomical. In the case of both Turkmenistan and Qatar, Pakistan did not enter into any sort of binding agreements, and because available supplies with these countries have been sold, no more gas would be available from these countries.
The IPI (Iran-Pakistan-India) gas pipeline project is a long story (global political situation is not being discussed for obvious reasons) but the current plan to lay the 54 inch pipeline through the coastal area has a major flaw. The long route has escalated the projects cost and the route requires building a lot of bridges otherwise the pipeline will have to be buried very deep. These bridges are to be built keeping in view the damage that (has been and) could be caused to the coastal highways by flash floods, which would add a lot to their cost substantially, and the time required to build the pipeline will become uncomfortably long.
The shorter route available through Balochistan is not being considered by the government, which does make sense because of the safety fears referred to earlier. Even if Pakistan starts building the pipeline on priority basis, it may take five years to complete the project (i.e. by 2013), and it may plug the energy gap only thereafter.
LNG is a possibility but there are few issues that need to be addressed. To begin with, there is a global shortage of LNG, and all the current production facilities are booked. At present no surplus is available off the shelf. Hence, Pakistan has to enter into a long-term agreement with a supplier, possibly in the Middle East, or another nearby supplier. During the next few years, both the countries working under a binding agreement would build the facilities, which would make it possible to import LNG in sizeable volumes in four years time after such agreement. There are some sources that promise to supply LNG in a short span of time. These brinks men demand a high price for supply, and a very costly re-gasification plant would have to be installed on the ship bringing the LNG. Finally, the gas could be purchased only from the ready markets that are already over sold.
Solar energy: At present, except for low-ampere domestic use, solar energy is a distant possibility, although in a country like Pakistan where clouds are a rarity for most part of the year, it could be a workable option. There is a simple way of harnessing this energy for the industry, which is dependent on steam generation through oil or gas-fired boilers. Water can be pre-heated by converging sun rays on tanks made of metals/alloys that can easily absorb the heat. This pre-heating can reduce the cost of producing steam and reduce the energy resource gap to an extent, though negligible.
Coal: Pakistan has enormous coal reserves (probably the third largest in the world) that remain untapped and even the industries that have converted from gas to coal as their energy source have to import coal mostly from Indonesia, which is again a drain on Pakistans scarce foreign exchange reserves.
Wind energy: The government is following a policy to encourage investment in wind energy. Two corridors have been identified in Sindh, and land has been allocated to various wind energy projects. But simultaneously, the government of Sindh has raised the price of leased land from Rs500 to Rs1000 per acre, which can act as a deterrent. The other issues confronting the wind power sector are as under:
* Scarcity of equipment: Wind power equipment is in short supply, the world over. Propelled by GDP growth needs, demand for energy has been growing globally, and as cost of energy derived from fossil fuels has increased two-fold during the last three years, the demand of wind power equipment has also grown manifold.
*Due to growth in demand and increase in the cost of metals, especially steel and its products, the price of equipment required for wind power has increased manifold.
*Technical know-how is available but is scarce, which renders this vital input very costly but the bigger problem is getting this input.
*Due to all these stated factors, the cost of generating electricity using wind power technology remains high while the current tariffs being offered by the government are low. Currently, the estimated cost of power generation through this technology is Rs11 to Rs12 per KWH while the tariff allowed by the government ranges from Rs10.5 to Rs10.75 per KWH.
Although the cost of equipment and know how is high, the advantages of wind power are quantifiable, and after a number of years, electricity generated by this technology would become the cheapest compared to alternate sources of energy at that point of time. To boost the wind power energy sector, the government should agree to realistic tariffs so that investment could become attractive and feasible. The case for such adjustment is strengthened by the fact that, at present, the government is subsidising oil prices by paying price differential claims. Diesel alone is being supplied at the parity value equivalent to $52 against an average market price of $93 per barrel.
The wind power project equipment consists of some medium and some high tech equipment. The equipment consists of a mast, which in Sindhs conditions should be a least 80-meter high. There is a lift in the mast and a wind turbine besides other related equipment. The highly technical parts are the wind turbine, electric circuits, and the technology that determines wind speed and direction, and accordingly changes the angle of the blades. Changing the angle of the blades is crucially important for the safety of the mast itself because high winds, storms, or tornados could damage the whole mast and its machinery besides causing loss of life and damage to property around the mast.
To install this initially expensive but eventually very economical technology, in the first instance Pakistan may start importing and installing the equipment to generate electricity but in the long run, it must encourage domestic production of the equipment. If Pakistan can replicate the sophisticated machinery and equipment for uranium enrichment and also can produce or cause to be produced very high RPM centrifuges, machinery, electric circuits, vacuum valves and allied equipment then, probably, Pakistan also has the capacity to produce equipment for wind power. It can also enter into technology transfer agreements with foreign manufacturers. The local capability has the necessary ingredients to deliver which includes a production base in metallurgy, capability for manufacturing other essential components, and know-how of electrical engineering.
In the first instance, simpler equipment could be produced locally and gradually the more complex components could also be fabricated in Pakistan. Since wind power machinery would continue to be scarce globally, in the coming years, the country could become an exporter of some of this equipment through joint ventures with internationally recognised manufacturers.
Initially domestic producers could enter into technology transfer agreements and the industry could grow, which, in the past, has been the case with various other technologies. Small suppliers chains would erupt as we have seen in Sialkot, Gujranwala and Gujrat where, to produce finished goods, many exporters now only have to assemble the components manufactured by domestic suppliers in the small and cottage industries sectors.
The considerations that place wind energy on top of the list are--- that generating energy using this technology requires no fuel, and the energy production process does not pollute the environment. If Pakistan starts producing even a part of the hardware of this technology then, progressively, the equipment would become cheaper, and there would be less drain on the foreign exchange reserves compared to the pressures generated by import of fossil fuels to generate power through heat conversion that requires burning environment damaging fossil fuels.
(The writer is the chairman and the managing director, NIT) The looming energy crisis
The looming energy crisis -DAWN - Business; March 17, 2008
