Navigating the LNG conundrum

EDITORIAL: Pakistan’s decision to defer an LNG purchase agreement with Qatar by a year - whether tied to the 2016 deal or a subsequent agreement - speaks volumes about the country’s economic trajectory.

With no penalties imposed, this deferment reflects the ongoing struggle to balance energy requirements against a backdrop of limited fiscal space, painfully slow economic recovery, and faltering industrial growth. However, the broader implications of this decision warrant a closer scrutiny.

For over a year, Pakistan has abstained from buying LNG from the spot market. This is telling of its economic state, where high energy tariffs and plummeting industrial activity have drastically reduced energy demand.

Large-scale manufacturing (LSM) recorded negative growth in the first quarter of FY25, signalling a weak industrial demand.

Moreover, power generation has been in consistent decline, with the 12-month rolling average dipping to a disheartening 10 billion units per month - a level last seen five years ago. These indicators underline an alarming regression, leaving Pakistan’s energy and industrial sectors in dire straits.

Compounding the issue is the puzzling assertion of inability to fully accommodate available indigenous natural gas in the pipeline network as winter approaches - a season synonymous with spiking domestic demand and widespread gas load-shedding.

Pakistan’s inability to implement Weighted Average Cost of Gas (WACOG) pricing, despite the requisite legislation, continues to exacerbate inefficiencies. Gas shortages have become a seasonal norm, and with the deferment of LNG cargoes, the likelihood of uninterrupted supplies appears grim.

This predicament stands in stark contrast to Pakistan’s potential in LNG-based power generation. The country boasts some of the most efficient LNG power plants globally. Yet, consistent lapses in planning and coordination in demand forecasting have led to gross underutilization.

LNG still accounts for nearly 20 percent of electricity generation as per the FY25 reference generation figures, underscoring its critical role in the energy mix. A more coordinated approach could alleviate the recurring challenges faced by the power sector.

The deferment also raises concerns about Pakistan’s reputation in the global energy market. Government-to-government interactions are built on trust and reliability, both of which could suffer if such decisions become a pattern. Future negotiations for energy deals, whether with Qatar, Russia, or other stakeholders, might face heightened scrutiny or less favourable terms, further straining an already precarious energy landscape.

To navigate this crisis, Pakistan must prioritize reviving industrial growth and expanding electricity usage. Without sustained demand from industry and an efficient energy consumption framework, such crises will persist. Moreover, addressing inefficiencies in energy pricing and aligning gas supply with demand - especially during peak seasons - should form the cornerstone of an updated energy strategy.

As Pakistan attempts to steady its economy, decisions like LNG deferment must be contextualized within a broader policy framework aimed at sustainable recovery.

Balancing immediate fiscal constraints with long-term energy reliability is no easy task, but the costs of inaction are far greater. Only through a concerted effort to revitalize industry, reform energy governance, and restore trust in international partnerships can Pakistan hope to break free from its cycle of energy and economic crises.

Copyright Business Recorder, 2024