Oil imports will continue sky-rocketing

W hile external balances stay in trouble on a longer term basis, more bad news has now hit the economic horizon. Pakistan’s energy import bill will rapidly rise from $11 billion in 2010 to $14 billion in the current 2011. It projected to rise to $38 billion in 2015, and to $50 billion in 2026. Demand of imported oil will escalate, to 25mmt by 2016.

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Published: Mon 18 Apr 2011, 11:51 PM

Last updated: Tue 7 Apr 2015, 3:33 AM

Pakistan Energy Outlook (PEO), unveiled at the Pakistan Energy Conference-2011, Islamabad, projects that if the government continued with its slow-moving and largely ineffective energy policies, the country will, indeed, face a rather bleak future, and its external balances may crumble beyond redemption. The situation is dismal. The report doubts, Pakistan will be able to significantly develop its domestic energy resources, despite a big potential of hydel power and coal. It translate into still more energy import which may grow from the present 30 per cent to 75 per cent by 2026. Pakistan energy imports in 2026 are projected to skyrocket to a whooping $50 billion a year. Who has got that kind of money and in dollars, too?

The ongoing energy crunch is already slashing the potential GDP growth by two percentage points a year, Ministry of Finance says. It can grow further in the event of the crunch cutting into the economy deeper still.

Energy consumption rose from 34 million tonnes oil equivalent (MTOE) in 1995 to 61 MTOE in 2010 up 80 per cent and helped an average GDP growth of 4.5 per cent in the last 15 years.

There several causes of the growing demand-supply deficit. These include the fact that no significant hydel generating capacity was installed in the last several years, exploration and development of oil and gas potential has been slow, the old electricity grid and distribution system leads to big energy losses, and above all there is an outright theft of power which is estimated at around 30 per cent of all power generated. Pakistan has an installed power generation capacity of 20,000 megawatts but the real output is only 13,000 mw. Generation must be doubled over the next fifteen years, PEO recommends. The government-operated thermal power units have an installed capacity to generate additional 5,000 mw, but these units have low output and their maintenance is expensive especially due to rising cost of fuel. The energy conference recommends privatisation of these units, as it claims the private sector can turn them into more efficient and cost effective. But as the private sector has asked the government to deregulate the pricing of utilities for the consumers, it means the tariff will go up. Can the government take such a highly unpopular decision at a time when prices of all utilities and consumer items already are posing a threat even to the existence of the present government led by Prime Minister Yusuf Raza Gilani?

The key source of energy in Pakistan now is natural gas. It provided 27.7 MTOE energy which is 45 per cent, in 2010. Oil, primarily imported, provides contributes 21.3 MTOE or 34.9 per cent , followed by hydel power with 7/5 MTOE or 12.3 per cent, imported coal 3.7 MTOE or 6.0 per cent, and nuclear-based power 0.8 MTOE or 1.3 per cent of the energy mix. Experts are of the view that even after the latest addition to oil refining—Byco Refinery project — the demand for petroleum, oil and lubricants (POL) will generate a deficit of more than 14mmt (million metric tonnes). The POL demand is projected to increase from 21.3 million metric tonnes (mmt) during the current 2011 to 23.1 mmt in 2012. It will rise to 25 mmt by 2016.

The industry which has been slow to expand has now to start planning, investing and installing more capacity and upgrade itself. With a rising demand for POL, “there will be an imbalance in points-of-input and points-of-consumption. 70:30 is the furnace oil demand in Southern Pakistan and in central Pakistan,” Dr. S.N.Zaidi, General Manager, Pakistan State Oil points out.

Because railway are a more efficient and cost-effective mode of transport, the crumbling railway infrastructure needs to be reinforced through local and foreign equity. But who will provide it? Pakistan Railways, initially, used to moved more than 2.5 million tonnes of petroleum products across Pakistan. Its down to 9.5 million tonnes this year. Transportation of POL is increasingly diverting to road transport and tankers for which 10,000 tank lorries have been deployed, Dr. Zaidi says. But, is it cost effective? Doesn’t transportation by road itself consume a good deal of oil products in doing so? What are there environmental, infrastructural, road and highways network degrading and several other factors in such a large operation?

Energy experts and planners also are of the view that there is an urgent need of strategic storage development to build up country reserves of crude oil and finished products. What should be the role and deployment of Pakistan’s Western-most Gwadar port, strategically located just across the Straits of Hormuz and GCC region? This newly-built multi-billion port virtually stays unused. “The potential of Gwadar as a bunkering hub is huge due to its proximity to the Straits of Hormuz, the oil industry needs to develop oil depots at the point of consumption to cater for the demand,” said Dr Zaidi.

Views expressed by the author are his own and do not reflect the newspaper’s policy.

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