By: Dr. Muhammad Shahid
Pakistan’s oil imports are the biggest drain on foreign exchange. Oil import bill has been recorded 23 billion dollars during the fiscal year 2023. At lower prices, oil imports have hovered around 10-12 billion but the surge in global commodity prices have contributed to the import bill substantially. As a result, current account deficit has been widening, which has caused, among other challenges, unbridled inflation. The latest available data indicated that petroleum group imports witnessed a growth of 105.31 percent as it reached 23.318 billion dollars during fiscal year 2022, compared to 11.357 billion dollars during the same period of last year.
The behavior of oil prices is highly unpredictable in the current uncertain environment. Russian invasion of Ukraine disrupted the energy supply. Furthermore, the climate change-based energy transition period added to the uncertainty in oil prices. The availability of other imported fossil fuels is not without problems. Prices of LNG and coal have increased considerably. The higher commodity prices led to higher energy prices in Pakistan. Pakistan’s power sector circular debt has spiked to an alarming level of Rs 4,177 billion as the government fails fix the energy sector crisis. The circular debt of the electricity sector has touched Rs2,277 billion, while Pakistan State Oil’s debt has crossed Rs600 billion. Similarly, the circular debt of the gas sector has reached Rs1,400 billion.
Pakistan’s oil and gas resources are going down because there is lack of investment in the oil and gas exploration sector. Out of 20 billion tons consumption, almost 50% is locally processed by refineries while 50% is imported as finished products. 30% of crude oil requirement is produced from local oil fields. Local crude oil production has decreased from 4.3 MTPA to 3.7 MTPA. We know that exploration of oil and gas is a capital-intensive investment and attracting foreign investors as well as domestic investors needs incentivization and policy consistency.
Another alarming aspect of the energy sector in Pakistan is the depleting domestic reserves. Local gas supplies decrease by 10 per cent every year. LPG demand in Pakistan is around 1.3 million tonnes per year. Pakistan meets half of the supplied by local suppliers and the other half is imported. The market share of LPG in the domestic sector is 41 per cent, commercial 43 per cent and industry 16 per cent. International suppliers are not responding to our tenders for gas purchases due to an already weak supply situation. The presence of energy and gas crisis across the world is making the international suppliers reluctant to respond promptly to our growing needs.
Ethanol blending is being mandated for environmental reasons. Mixing of ethanol around 10 percent is the standard practice. Besides the environmental and climate considerations, indigenization of fuel and price stability are the rationale for adding ethanol. Ethanol is produced in sugarcane distilleries. Both India and Pakistan have an almost identical sugar industry structure but India has achieved its target of 10 percent blending and is trying to move to even 20 percent. Pakistan State Oil has tried to introduce it almost a decade earlier but could not succeed for a variety of reasons. Pakistan can take benefit from the expertise of India in this field.
India has already installed many Bio-CNG plants and planning to install 5000 Bio-CNG pumps in the next five years. Pakistan can also learn from India in introducing Bio-CNG pumps. Biogas has a lot of potential in Pakistan and Bio-CNG can add to the petroleum supply product portfolio. More than 3000 CNG plants have been installed in Pakistan, many of which have been shut down due to lack of availability of gas and expensive LNG.
Hydrogen will play a critical role in overcoming energy crisis in the future. The good news about hydrogen is that it can be locally produced through solar and wind energy of which we have a lot of potential. India plans to produce 5 million tons per year of Hydrogen by 2030. India has also started with mixing Hydrogen around 10-15 percent in natural gas pipelines.
We can take help from Indian experts to minimize the use of oil and gas by introducing hydrogen. Introducing technology and reaching efficiency in hydrogen is a time taking process. India has ready plans to build Electrolyzers and making capacity of 12000 MW. Electrolyzers are used in the electrolysis of water by which Hydrogen is separated. It is high time that a Hydrogen policy and plan is made by the government. The added advantages of using hydrogen is expected to reduce pollution and overcome the problem of smog in winters.
Besides, getting help from India in E10 blending, Bio-CNG and collaboration in generating energy from hydrogen, regional cooperation in the of TAPI and IPI can also improve the energy situation in Pakistan and regional countries.
For Instance, Turkmenistan-Afghanistan-Pakistan-India Natural Gas Pipeline (TAPI) and Iran-Pakistan-India (IPI) can significantly help in averting energy crisis. The TAPI pipeline project envisions the supply of Turkmenistan’s gas to India and Pakistan via Afghanistan. The 10 billion dollars TAPI pipeline would carry 33 billion cubic meters of gas a year through a proposed approximately 1,800-kilometer pipeline from Turkmenistan to Afghanistan, Pakistan and India. TAPI pipeline is a transnational project that crosses four countries. Although, the project faces major uncertainties, the renewed priority of the TAPI pipeline may help finally push the project toward breaking ground.
TAPI will reduce the oil import bill of Pakistan substantially. TAPI price ranged between 6 dollar and 7 dollars per MMBtu, whereas Pakistan imported liquefied natural gas at 12 dollar per MMBtu on spot-purchase basis. Pakistan faced gas crisis due to dependence on the LNG imports and more than 70 per cent of industry is closed due to energy shortage in the country. Pakistan and Turkmenistan have begun talks to revive the Turkmenistan-Afghanistan-Pakistan and India gas pipeline project which has been stalled due to differences over price review and the delivery point.
The revival of the Iran-Pakistan-India gas pipeline project would also minimize the huge energy deficit in the country. No doubt, good relation with the neighboring countries including India will maximize the welfare of everyone in the region.
We know that regional integration is geographical but it is more of a political nature. Share prosperity by accelerating economic growth is the most compelling arguments for regional integration. Some indecisive political and economic issues should not detract policymakers from cooperating closely. We need to identify the critical barriers to promoting regional cooperation to boost greater regional integration. Issues of grave concerns should be solved amicably to foster strong cooperation across countries and subregions. Without cooperation, our economies are likely to experience a lengthy period of slow growth.
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