Pakistan’s gas crisis is still raging, with government officials warning that there will be “no gas supply to household consumers for 16 hours,” kicking off a difficult winter.Natural gas has always been a scarce commodity in Pakistan, but this year, the country is dealing with the fallout from Russia’s invasion of Ukraine, which has triggered a global energy crisis. The cash-strapped country is facing an unusually severe shortage due to a lack of foreign exchange reserves to purchase gas and a limited supply in the international energy market.
Pakistan imports 56% of its refined petroleum from the UAE, with the remainder coming from Saudi Arabia. When Russia invaded Ukraine, global demand for energy products skyrocketed, prompting lucrative European markets to increase imports from key suppliers like Saudi Arabia and Qatar, which have raised their prices exponentially in response to the increased demand. Almost all gas cargoes are currently destined for Europe, where buyers are willing to pay exorbitant prices to secure gas supplies in the face of deteriorating relations with Russia.
The energy deficit is expected to last the entire winter, as the country’s failure to secure a long-term supply of LNG and invest in domestic gas production has come back to haunt it. The government claims that it intends to provide more relief to domestic consumers this winter than it did last year, when the gas crisis was even worse, and that it is currently looking to import alternative fuel sources such as liquefied petroleum gas (LPG). Pakistan signed long-term contracts with LNG suppliers in Italy and Qatar over a decade ago to protect itself from volatile prices, but these companies have now found partners willing to pay much more. Pakistan is hesitant to import gas from Iran or Russia due to international sanctions. Meanwhile, gas trader Gunvor has just informed the country that it will be unable to make a delivery scheduled for January 10, putting additional pressure on the country’s collapsing economy to attract more bidders.
Pakistan’s gas shortage comes at a critical juncture in the country’s history: the country is dealing with rising inflation and a weakening currency, tax collection is half of what it should be, and power outages continue to disrupt industrial operations, particularly in the textile sector. An increase in demand for energy supplies is unavoidable, and it is critical that we not only investigate countries that can offer it a good deal and low costs but also invest in its reservoirs to reduce its reliance on the outside world.According to officials, big international petroleum companies prefer low-risk countries like Pakistan when looking for oil and gas.
That leaves us with only one option: importing LNG to fill supply gaps. That is exactly what we did in 2015 when we established the country’s first RLNG terminal. However, the ongoing international commodity super cycle has taught us that such an option only works for countries like Pakistan, which is always faced with perpetual balance-of-payments issues, when international gas prices are low and affordable. As a result, if Pakistan is to address the gas crisis, it must prioritise early domestic gas discoveries. Alternatively, we can continue to ration gas until we run out.