by Arshad H. Abbasi
The Minister of Petroleum and Natural Resources published an op-ed in August defending his Ministry’s actions in the LNG process. The “facts” cited in his op-ed deserve to be refuted separately, but one thing is evident: the Minister spends more time spinning facts to defend mistakes rather than admit the reality in front of the public eye. He makes simple facts sound complex to confuse laymen, and even alleges, “LNG procurement is a sophisticated process and cannot be explained by so-called ‘energy experts’ with a few baseless statements.”
Owing to space, this op-ed will not be able to address all points, but the most glaring inaccuracies that stick out are:
1. Projecting the country’s demand for natural gas as just “Pakistan’s projected demand of 15 million tonnes per annum of LNG” – this is a grave distortion of facts that leaves a reader thinking that there are no alternatives to LNG. Global LNG trade started, in January 1959 in more than 42 Countries gas through pipelines, with a volume of 24 Trillion Cubic Feet (TCF). LNG volume in more than 25 countries is 12 TCF. The import price is made public, and prior to that, due diligence and analysis on price, in local economy. Pakistan’s “LNG saga” is unprecedented. The country has a natural gas shortfall of estimated 3 BCF/day, but alternatives of pipelined gas, exploiting indigenous resources and natural gas demand conservation through efficiency and controlling 15% losses (UFG) cannot be ignored.
2. The LNG price quoted ignores what the final cost would be to a power plant, because even on a FOB basis, the landed price plus the charges of regasification, charges to SSGC, SNGPL or other entities involved would apply. What would be the cost of electricity generation when cost LNG, stated by Minister $8.2 and $8.6 per MMBTU? Is it not the true that total cost at doorstep after price addition is $ 11, $ 12 or $13/mmbtu? This matter is not explained, and actual cost is ambiguous. The official figures of oil-based generation are around PKR 9 per unit. The average cost of generation has remained PKR 5/kwh, using domestic gas having price USD 4.5. What will be the cost of generation when power uses LNG at three times the price? In fact, according to the NTDC, which is responsible for transmission and distribution of power, regasified LNG is costlier than furnace oil! The average cost of generation was RS 5.57 unit using Natural Gas, PKR 9.9 using FO and PKR 13.88 using high speed diesel. This is publicly available knowledge, but has been ignored.
3. The “LNG Terminal will yield a minimum of $1 billion in annual savings for Pakistan’s power sector and displace over $3 billion annually in oil imports” – this is another distortion of facts. Anyone with a simple knowledge of mathematics and an eye on global oil price will not buy this. Brent Crude oil is around $48/barrel at present, and the Minister’s calculations of savings were made when oil was above $100/barrel. Energy pundits say price may plunge to $35 and will be in the $60/bbl range for 2016. Does long-term LNG fit in that scenario?
4. Is the Energy Mix dependent on imported natural gas and oil even a viable option? The assumption that demand stays constant and cannot be controlled is flawed.
Our Minister, as usual, is not paying heed to the changes around him. It is disappointing that even though the organizations working under the nose of the Minister are some of the best experts in the country, yet the Ministry has only a single-minded focus: LNG. This is at the expense of efficiency, unaccounted for gas, serious management issues, petroleum supply chain management, heck, even the Energy Yearbook, an annual publication has not been published! Yet despite the fact that the Ministry has one single-minded focus and mission, it has failed to evaluate the LNG deal, with transparency and due diligence. It has had to heckle with its own people, to sell a price that would be unaffordable, instead of negotiating with the Qataris or other LNG Exporters. Even after two and a half year, the tender has not been conducted in a transparent manner and the criteria for choosing Qatar has not been made clear to the public. The best they have managed is a “world record” in completion of an LNG terminal (even that was being used as a makeshift Floating, Storage and Regasification Unit (FSRU), instead of a legitimate terminal). Did our nation have to pay the capacity charges if the terminal stands idle? I presume that the senior management of the Terminal must be waiting for smooth operations and a 24/7 flow of LNG cargo, to fill the barren pipes.
The biggest argument that the Ministry has been sprouting is that Gas-fired has better efficiency them Oil fired. This statement is different than holy verse. The minister didn’t consider: what is the efficiency of the existing power plant? I must tender an apology, because the audit of IPPs is a red-zone, in a country where every secret is part of public debate except efficiency of power plants. But the GENCO‘s is available- ranging 19% to 32%, which is cause of grave concern and I can share with minister.
So why does this esoteric “efficiency” matter? My bill is directly proportional with the efficiency of power plant- if plant has higher efficiency it will consume less diesel, gas or oil.
Let us suppose the price of RLNG will be around USD 12 per mmbtu, including all charges, then electricity generation cost will jump to PKR 14 per unit more than diesel. The share of diesel based electricity generation is only 1.6 percent. Last year, the share 1642 Million units out of 99800 million units of electricity generated – only 1.6 percent. Thus total cost of 22 Billion were spend to generate 1642 million units. But the minister is committed to save PKR 300 billion replacing diesel. This only happens, in a country where accountability is for not for holy ministry of Petroleum. Will the NAB wake up when the Minister will strike the deal for next 15 years, offering sovereign guarantees? When these will wake up the only remedy will be international courts. In that sad event, the decision will not be different than HUBCO verses GOP. The victims, as always, will be 22 million electricity consumers.
It seems like we need a Pakistani Research and Analysis Wing (RAW) to conduct deep analysis on energy!
The writer can be contacted at ahabasi@gmail.com. This article first appeared in http://www.thenews.com.pk/Todays-News-9-340744-The-LNG-deal-and-the-masters-of-spin