A 75% Slump in Gas Aids Pakistan's Quest to End Energy Crisis

  • Nation may become one of world's top five LNG importers
  • Liquefied natural gas prices have fallen 75% since 2014

A 75 percent drop in liquefied natural gas prices since 2014 is just what Pakistan needed. Prime Minister Nawaz Sharif’s government is confident it will help end the nation’s energy crisis by 2018.

In three years, the South Asian nation plans to import as much as 20 million tons of the super-chilled gas annually, according to Pakistan’s Petroleum Minister Shahid Khaqan Abbasi. That’s enough to feed about 66 percent of Pakistan’s power plants that have a total capacity of 23,840 megawatts. A fuel shortage has rendered half the nation’s generators idle.

“The energy crisis will be solved before the government’s term ends in 2018,” Abbasi said in a phone interview. “When a customer comes to us asking for gas, we can say, yes, we will deliver gas to you on this date. Earlier we said there is no gas, goodbye.”

Sharif’s plan to use LNG and build coal-fired electricity plants will help textile, fertilizer and steel producers boost output and spur growth that the nation’s power regulator estimates is 3 percentage points below potential. Outages lasting 18 hours had led to street protests in Karachi as recently as June, while falling natural gas production at home forced companies such as Tuwairqi Steel Mills Ltd. to idle it’s plant.

Pakistan is going all out for LNG “as it’s become more affordable,” Vahaj Ahmed, an analyst at Exotix Partners LLP in Dubai said by phone. “This gives policy makers room to justify why they are going for it. The difference between imported and natural gas is very small now.”

About 60 million cubic feet per day of LNG imports will be reserved for textile companies that have export orders, according to the finance ministry. The industry accounts for about half of Pakistan’s total exports, which declined 14 percent in the six months to Dec. 31. Fuel pumps, which are often shut for days, will benefit from the imports in the nation that was once the world’s largest compressed natural gas market.

LNG for delivery in Northeast Asia has dropped about 75 percent since 2014, according to World Gas Intelligence data compiled by Bloomberg. Spot price of the supercooled gas is likely to trade between $4 and $5 per million British thermal unit over the next four years, Goldman Sachs Group Inc. analysts including Christian Lelong wrote in a report dated Jan. 31.

Pakistan will become one of the world’s top five buyers of LNG should the government’s plan succeed, according to Abbasi. The nation started importing LNG using a floating facility last year. Two more terminals are scheduled to be completed next year, Mobin Saulat, chief executive officer at Inter State Gas Systems told reporters last month. The nation got its first shipment last year.

The world’s top five LNG importers are Japan, South Korea, China, India and Taiwan, according to International Group of Liquefied Natural Gas Importers. Pakistan also separately agreed on a 15-year contract with Qatar.

LNG will improve diversification of Pakistan’s energy needs but its only one part of the equation, Mervyn Tang, lead analyst for Pakistan at Fitch Ratings Ltd. said in an e-mail. “Progress on multiple fronts could help foster a sustainable stable energy environment, with potential positive knock-on effects for private investment and economic growth,” he said.

Before it's here, it's on the Bloomberg Terminal.