Pakistan gas pains threaten economic calamity

PESHAWAR – Pakistan is teetering towards an energy-cum-economic crisis as natural gas supplies dry up, export-oriented factories that use the fuel close down and households that rely on it for heat and cooking are left in the cold. Critics blame short-sighted government policymaking as textile producers, the backbone of the export industry, warn of an indefinite shutdown from next month due to fuel shortages. The government has already cut supplies to non-export industrial units due to the sudden shortfall in supplies. Gas shortages are pumping up the price of food while many have been forced to use scarce firewood for basic cooking, according to local reports. Top official sources told Asia Times the situation is worse than the government publicly suggests, claiming that gas supplies may remain suspended all winter. They said a yet-unveiled load management plan proposes to disconnect supplies to around 200 textile producers so the gas can be diverted to other areas of the economy. “Gas reserves have been depleting since the last few years. The government was aware that the existing gas supply in the country cannot meet the growing demand for gas but a timely decision has not been taken,” Qaiser Bengali, a distinguished national economist, told Asia Times. “They failed to bid for liquefied natural gas (LNG) at an ideal time in summer when the spot prices in the international market were low.” He said Prime Minister Imran Khan’s government seldom takes prudent decisions at the appropriate time due to what he and others see as incompetent policy-making. “Khan’s government is run by different lobbies, which make decisions that suit their interest. They made a mess of the LNG shipment and resultantly created a chronic gas crisis in the country,” Bengali added. Pakistan had based its LNG import policy over the last few years on the premise that the fuel would be abundant and cheap in the near-term. But that projection missed the mark as Asian LNG rates have skyrocketed this year, crucially when half of Pakistan’s demand must be bought at prevailing global spot prices. Workers supervise embroidery machines working on fabrics for wedding dresses at a small factory on the outskirts of Islamabad. Photo: AFP / Farooq Naeem Pakistan gets half of its LNG at cheaper rates than prevailing market prices due to a long-term contract with Qatar. The country still needs spot shipments in winter but Pakistan LNG Limited (PLL) – a public-sector LNG company – failed to float tenders when prices were low in the international market due to a pandemic-caused collapse in demand. At the same time, the state-owned entity restricts the private sector from importing LNG to protect its monopoly on supply, a perennial complaint among private oil and gas companies. Last month, Pakistan procured an LNG cargo at a highest-ever price of US$30.6 per Million British Thermal Units (MMBtu) from Qatar Petroleum to avert a total collapse in supplies in winter. Earlier, the PPL had floated emergency bids for two cargoes to be supplied in November. Singapore’s GUNVOR and Italy’s ENI, firms that signed short and long-term agreements with PPL to provide LNG cargoes, have backtracked on their commitments and refused to deliver the cargo. As a result, the state-owned firm had to call costly emergency tenders for two LNG cargoes for December and January. GUNVOR has told authorities it will not be able to deliver its LNG cargo due on January 10, claiming force majeure, according to local press reports. It will mark the second time it defaulted on a shipment, the first being on November 19-20.   The deepening gas crisis has sparked political controversy, with opposition politicians demanding an inquiry into LNG purchases by the state-owned importer. Opposition parties say mismanagement and poor governance have caused an unprecedented and dangerous gas crisis at the peak of winter when demand for gas is highest. Opposition parties have also lashed out at the government for suspending gas supplies to industry, which they claim has crippled manufacturing production and hence the wider economy. The Pakistan People’s Party (PPP) has spearheaded a countrywide protest campaign against the gas crisis, organizing demonstrations in Sindh and other parts of the country.    The Punjab textile industry, which accounts for 80% of the country’s textile sector and contributes about 70% of national exports, had its gas supplies cut from December 15. Industry sources say they fear they may lose the bulk of their export orders if the government does not restore gas to their manufacturing units. In a statement, the All Pakistan Textile Mills Association (APTMA) asked Prime Minister Khan to intervene immediately to ensure the supply of electricity and gas to textile units. Textile industry leaders told Prime Minister Imran Khan workers and their families would take to the streets if their concerns were not addressed.

Pakistan gas pains threaten economic calamity

PESHAWAR – Pakistan is teetering towards an energy-cum-economic crisis as natural gas supplies dry up, export-oriented factories that use the fuel close down and households that rely on it for heat and cooking are left in the cold.

Critics blame short-sighted government policymaking as textile producers, the backbone of the export industry, warn of an indefinite shutdown from next month due to fuel shortages.

The government has already cut supplies to non-export industrial units due to the sudden shortfall in supplies. Gas shortages are pumping up the price of food while many have been forced to use scarce firewood for basic cooking, according to local reports.

Top official sources told Asia Times the situation is worse than the government publicly suggests, claiming that gas supplies may remain suspended all winter. They said a yet-unveiled load management plan proposes to disconnect supplies to around 200 textile producers so the gas can be diverted to other areas of the economy.

“Gas reserves have been depleting since the last few years. The government was aware that the existing gas supply in the country cannot meet the growing demand for gas but a timely decision has not been taken,” Qaiser Bengali, a distinguished national economist, told Asia Times.

“They failed to bid for liquefied natural gas (LNG) at an ideal time in summer when the spot prices in the international market were low.”

He said Prime Minister Imran Khan’s government seldom takes prudent decisions at the appropriate time due to what he and others see as incompetent policy-making.

“Khan’s government is run by different lobbies, which make decisions that suit their interest. They made a mess of the LNG shipment and resultantly created a chronic gas crisis in the country,” Bengali added.

Pakistan had based its LNG import policy over the last few years on the premise that the fuel would be abundant and cheap in the near-term. But that projection missed the mark as Asian LNG rates have skyrocketed this year, crucially when half of Pakistan’s demand must be bought at prevailing global spot prices.

Workers supervise embroidery machines working on fabrics for wedding dresses at a small factory on the outskirts of Islamabad. Photo: AFP / Farooq Naeem

Pakistan gets half of its LNG at cheaper rates than prevailing market prices due to a long-term contract with Qatar. The country still needs spot shipments in winter but Pakistan LNG Limited (PLL) – a public-sector LNG company – failed to float tenders when prices were low in the international market due to a pandemic-caused collapse in demand.

At the same time, the state-owned entity restricts the private sector from importing LNG to protect its monopoly on supply, a perennial complaint among private oil and gas companies. Last month, Pakistan procured an LNG cargo at a highest-ever price of US$30.6 per Million British Thermal Units (MMBtu) from Qatar Petroleum to avert a total collapse in supplies in winter.

Earlier, the PPL had floated emergency bids for two cargoes to be supplied in November. Singapore’s GUNVOR and Italy’s ENI, firms that signed short and long-term agreements with PPL to provide LNG cargoes, have backtracked on their commitments and refused to deliver the cargo. As a result, the state-owned firm had to call costly emergency tenders for two LNG cargoes for December and January.

GUNVOR has told authorities it will not be able to deliver its LNG cargo due on January 10, claiming force majeure, according to local press reports. It will mark the second time it defaulted on a shipment, the first being on November 19-20.  

The deepening gas crisis has sparked political controversy, with opposition politicians demanding an inquiry into LNG purchases by the state-owned importer. Opposition parties say mismanagement and poor governance have caused an unprecedented and dangerous gas crisis at the peak of winter when demand for gas is highest.

Opposition parties have also lashed out at the government for suspending gas supplies to industry, which they claim has crippled manufacturing production and hence the wider economy. The Pakistan People’s Party (PPP) has spearheaded a countrywide protest campaign against the gas crisis, organizing demonstrations in Sindh and other parts of the country.   

The Punjab textile industry, which accounts for 80% of the country’s textile sector and contributes about 70% of national exports, had its gas supplies cut from December 15. Industry sources say they fear they may lose the bulk of their export orders if the government does not restore gas to their manufacturing units.

In a statement, the All Pakistan Textile Mills Association (APTMA) asked Prime Minister Khan to intervene immediately to ensure the supply of electricity and gas to textile units.

Textile industry leaders told Prime Minister Imran Khan workers and their families would take to the streets if their concerns were not addressed. Photo: AFP / Aamir Qureshi

Sattar Shahid, executive director of APTMA, told Asia Times that if the textile industry was pushed against the wall and their concerns were not addressed, then workers and their families would take to the streets. “We are unable to deliver goods on order. The export orders once lost will be hard to recoup, causing huge foreign exchange losses to the country,” he added.

An APTMA letter recently sent to Khan said, “The suspension of gas will bring 80% of the textile industry to a complete halt, which will have an extremely negative impact on exports and bring to an end the extremely positive increase in exports and investment witnessed during the last year.”

Government sources have countered that textile industries should use grid-power available at special tariff rates instead of insisting on using gas for power generation. A senior Ministry of Energy official was quoted in media as saying that the industry was hell-bent on the inefficient use of natural gas for energy.

By doing so, industrialists were backtracking from an agreed energy package offered by the ministry, the official said. The official said it was made clear that the government would not provide costly Regasified Liquefied Natural Gas (RLNG) in bulk to industry to generate captive power, as electricity was readily available from the national grid at an agreed special tariff of $0.09 per unit.

The gas crisis has also contributed to a shortage of petroleum, oil, & lubricant (POL) products in the country, as Pakistan Refinery Limited (PRL) that refines 55,000 barrels of crude oil per day has shut down its operations due to a lack of storage capacity. The Attock Refinery Limited (ARL) – another big refinery – has also started to close down its operations.

The storage potential of almost all Pakistan refineries is brimming with furnace fuel oil but they have little to no space for storing their POL products. Furnace fuel oil is burned in a boiler and often used in engines to generate power, as now when gas is in short supply.