Pakistan Depletes Half of Its Gas Reserves
Pakistan is left with only 50 percent natural gas reserves as high consumption in different sectors has exhausted 50 percent of the overall reserves of 54 trillion cubic feet (tcf) by financial year of 2011-12, said State Bank of Pakistan in its annual report.
The country now has sufficient reserves to last just over 20 years, under the increasingly unlikely scenario that current production rates are maintained throughout. The country experienced some of the worst gas shortages in its history in 2011 as supply to the industrial, compressed natural gas (CNG) and power sectors was significantly curtailed, resulting in closure of hundreds of units and losses to business and productions.
The shortfall peaked during the winter season, when gas consumption for domestic heating increased, and demand reached 4,580 million cubic feet per day (mmcfd) versus supply of 3,878 mmcfd. Throughout the remainder of the year, shortfall in the system varied between 10 to 15 percent of demand (400-700 mmcfd), depending on supply availability from key fields.
The impact on textile production was particularly damaging and supply to fertilizer producers was curtailed by up to 20 percent vis-à-vis their allocation.
The natural gas availability to the power sector also remained below requirement. In particular, gas availability to Karachi Electric Supply Company (KESC) averaged around 55 percent of official allocation (276 mmcfd) whereas independent power producers based on gas were forced to remain idle or operate below capacity.
The factors contributing to prevailing shortages of natural gas exploration in Pakistan have not been undertaken aggressively, hence production has historically remained undiversified. As of fiscal year 2010, natural gas was being produced from 98 fields, of which nine fields accounted for 80 percent of total daily supply.
Exploration and production activity has been largely concentrated in Sindh with 71 percent of total production and the most recent significant gas discovery dates back to 1998.
In effect, Pakistan must aggressively explore alternatives to diversify supply of this precious commodity. Part of the explanation for why gas exploration has remained subdued may be found in the pricing structure of the commodity. Exploratory prices of gas are linked to crude oil, but impact of changes in reference crude prices is not fully passed on to investors, as benchmark prices for compensation are computed on a bi-annual basis only.
Furthermore, exploration and production companies accrue only 50 percent of any upside price movements in the price of gas with the remainder collected by the government in the form of a windfall levy. Producer (well-head) prices of gas therefore do not particularly incentivise exploration of the commodity, and production companies receive prices below import parity levels.
These features of domestic gas pricing may come across as peculiar at first, but are justifiable so long as the benefits accrue squarely to the country’s industrial base.
For these reasons, the supply-demand position of natural gas has deteriorated significantly, and shortages of the commodity with reference to indigenous supply are projected to increase to 3,021 mmcfd by FY16 or 48 percent of projected demand.
Nearly half of this deficit may be bridged by imports, if arrangements presently under consideration are implemented as scheduled.
Demand growth is expected to outpace increase in supply, and gas shortages may intensify in the near future. Based on supply projections, domestic production of gas is likely to peak by FY14 at 3,860 mmcfd and is set to decline thereafter.
Natural depletion in gas fields will ensure that committed supplies fall considerably short of demand, which is projected to reach 5,970 mmcfd by FY16. Production from fields presently identified for development will therefore become critical in managing the demand-supply gap.
Key projects scheduled to come online by FY14 will contribute 460 mmcfd to gas supplies. Furthermore, since domestic production of gas will no longer be sufficient to meet consumption requirements, reliance on imports will increase. Between FY12 and FY16, the domestic gas shortfall is projected to increase from 2,458 mmcfd to 3,021 mmcfd, which may be reduced by 40 percent via imports.
