Shale Won't Help Gas Deficit

BMI View: Pakistan's crippling energy deficit is set to continue as new gas supply projects have taken too long to develop, while demand continues to grow. T he efforts to increase gas imports will therefore add a lot more pressure on the budget deficit.

Following a joint study between Eni and Pakistan Petroleum Limited (PPL) on Pakistan's shale prospects, the companies calculated the cost n eeded to drill and produce shale gas . US$ 14/mnBTU was the price proposed to the Pakistani government , a figure that came in too high for their liking and postponing any prospective developments.

Pakistan has struggled to keep up with its gas demand , in particular the country's power and transport sectors are heavy users of gas. However, while gas demand is set to increase, Pakistan's fiscal balance remains heavily negative limiting available funds to import gas. It is therefore in Pakistan's interest to promote domestic gas development, or import at the lowest cost possible.

Further Strain On Fiscal Deficit With Growing Gas Imports
Budget Balance to 2017 (US$bn)
Pakistan Need A Gas Supply Solution Soon
Pakistan Gas Consumption and Production to 2017 (bcm)

The options open to Pakistan to increase their natural gas imports include:

  • Iran-Pakistan Pipeline - With the final stage of the IP pipeline underway, gas should start flowing from Iran to by the end of 2014. However, the 7.5bcm a year supply is barely expected to cover the gas shortfall, being enough to power around 4,000MW of the current 7,000MW power deficit in the country. Iran has offered to supply gas at the discounted price demanded by Pakistan, though a clear pricing structure has not been announced. It should be noted that the US has considered putting sanctions on Pakistan for the country's business dealings with Iran, which could further damage their delicate economy.

  • LNG Import Terminal - LNG remains more of an emergency strategy in Pakistan due to the high cost of Asian imports. Spot prices for LNG in Asia are currently over 15$/mnBTU, more than the proposed price for shale gas. Qatar has agreed to sell up to 5bcm of LNG a year to Pakistan on a government-to-government basis, most likely at a much lower cost than the current spot price. Pakistan, with no current import terminals, is aiming keep capital costs down by retrofitting two LPG terminals to receive the LNG; this is also expected to only take around 7 months to complete once contracts have been given out. However, these two conversions will only have the capacity to import around 2bcm a year of Qatar's offering meaning brand new import capacity would also be required. It appears that Pakistan may struggle to finance a larger project without allowing high LNG import prices, though a lower cost Floating Storage and Regasification Unit (FSRU) may be an affordable option.

  • Domestic Gas Development - In June, Polish company PNGiG began production from two tight gas wells in the Rehman field in the Kirthar licence. Positive results are showing that 100mcm could be produced per year, though testing is not expected to be complete until April 2015. Further gas discoveries have also recently been made in the Sukhpur Block of the Kirthar licence, with an Eni exploration well seeing potential production of over 300mcm a year. Activities are continuing in this area with additional exploration wells due to be drilled this year. It therefore appears that through domestic tight and conventional gas development, Pakistan can maintain its production levels. Shale gas is not considered to play a role in the next five years.

Due to the considerable energy defic it in Pakistan it is expected that a combination of all the above solutions will be needed and will go ahead in some form . Y et despite this effort it is improbable these developments will serve to suffice the extensive anticipat ed demand and will have a considerable negative impact on the fiscal budget.

This article is tagged to:
Sector: Oil & Gas
Geography: Pakistan, Iran

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