BMI View: Growing energy demand has already triggered gas shortages in the northern parts of Pakistan and this problem is likely to continue to worsen. Within this context, we see gas demand rising faster than production from 2013 as the government establishes the necessary LNG import infrastructure. Similarly, oil demand will continue to rise due to the substitution of oil for gas in the transport sector.
Pakistan's energy market is currently undergoing important changes. Historically large gas reserves and significant production have led officials to promote gas consumption rather than oil consumption in order to ease the financial burden associated with importing expensive crude. In 2011, gas reserves were estimated at around 839.7 bn cubic metres ( bcm ) by the Energy I nformation Administration ( EIA ) . We forecast that this number will fall to about 596bcm by 2022 following excessive reliance on - and a ramp ing up of - domestic production to meet ever increasing demand.
The government is attempting to reverse this tren d, which threatens Pakistan's foreign exchange stability . State-owned Pakistan Petroleum Limited (PPL) announced in early January 2013 that it would launch deepwater gas exploration in the Sindh Sea, in collaboration with Eni . PPL plans to start drilling exploratory well s by 2014.
In October 2012, 60 onshore oil and gas blocks were offered to bidders (bids will be accepted until February 8 2013). This round could prove reasonably successful considering that the government has reviewed its Petroleum Policy and has decided to offer better incentives to investors. Furthermore, the late-2012 increase in regulated gas prices offers higher potential returns for explorers ( see our online service, October 18 2012, 'New Fiscal Term And Bid Round Face Old Challenges'). In addition, Eni's September discovery, possibly holding 8.5bcm to 9.5bcm, could confirm Pakistan's potential in the eyes of prospective explorers.
Risk Of Increasing Shortages
Pakistan produced 39.1bcm in 2011 and an estimated 39bcm in 2012. A lack of import infrastructure constrained domestic consumption in 2011 and 2012. Furthermore, falling production rates have resulted in shortages in some regions of Pakistan. This was partially exacerbated by the former government ' s incentives to increase the use of gas in transport , particularly the use of Condensate Natural Gas (CNG) cars. In early 2013, energy minister Asim Hussien noted: '[Pakistan is] the 27th largest producer of gas in the world, and we are number one in CNG cars. So either those 26 countries are mad or our policies are bad. And I think it is the latter.'
|First Dependency Drift In Sight|
|Pakistan's Gas Production, Consumption & Imports (bcm)|
We forecast that gas production will peak at around 40.1bcm in 2015 - with the help of government incentives. However, we expect production to fall thereafter , especially from 2019 when production at the Sui Gas Field will come to an end. Gas output could fall to 35.2bcm by 2021. There is nonetheless potential upside towards the end of the forecast period : significant exploration is set to be carried out from 2014 ( due to the 2012 licensing round), PPL 's deepwater exploration will begin, and unconventional gas exploration will come to the fore.
Meanwhile, we see consumption continuing to grow beyond 2012 as liquefied natural gas (LNG) import infrastructure and international pipelines come online. From 39bcm in 2012, we believe economic expansion and population growth will push consumption to 55.5bcm in 2022. This number has been revised since we made our previous forecast, as we now expect a progressive switch from gas-powered vehicles to traditional oil-based transport. Accordingly , we see oil consumption now reaching 482,000 barrels per day (b/d) in 2022, 30,000 b/d higher than our previous forecast.
Solutions Come As A Difficult Choice
Pakistan is supporting the development of LNG infrastructure as part of its attempt to put an end to energy shortages.We expect first LNG to be imported into Pakistan by H213. For 2013, we expect 0.7bcm to 0.8bcm of LNG to be imported in order to match growing demand. Such imports could grow to 7bcm by 2022, as Pakistan receives significant political support from the US in order to turn it away from importing Iranian gas via the proposed Iran-Pakistan pipeline.
We nonetheless anticipate that the majority of the imported volumes will come from international pipelines by the end of the forecast period, most likely through the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, which could be completed in 2018 providing it garners sufficient support. The main reason behind our belief that this route is more likely to prevail than LNG imports is the fact that most shortages occurred in the Northern part of the country and transporting 19bcm of regasified LNG through the country's pipeline network would require a huge infrastructure improvement programme.
We see two main risks that could have significant impacts on these forecasts:
The country will be increasingly sensitive to changes in energy prices. A large downward movement in oil and gas prices could slow exploration and production activity.
Shale gas exploration is a very large upside risk to our forecasts. The country sits in 17th place in the EIA's list of countries with the largest unconventional resources, holding more than 1.4trn cubic metres in technically recoverable shale gas resources. If these are proven to be commercially viable in the coming years, it could change Pakistan's energy market. While we do not expect this to counter growing import dependence, it could largely re-incentivise reliance on gas for transport and energy generation, thus boosting gas demand rather than oil demand.