With an economic growth rate of about 7 , and per capita income that is only a fraction of that of other industrializing economies in the region, sustainable development of Pakistan’s energy sector is essential for the economic and social development of the country. The policy framework in place aims to ensure the sustainability and security of energy supply through accelerated development and utilization of indigenous energy resources, timely expansion of the energy infrastructure, diversification of the energy mix to include alternative sources and energy imports at competitive prices, and regulations and incentives to encourage private sector participation in the sector.
Primary energy demand in Pakistan was 58 MTOE in fiscal year (FY) 2006, with indigenous gas accounting for 51 percent of the energy supply, followed by oil at 28 percent. Assuming a GDP growth rate of 6.5, the overall demand for energy is expected to increase by a factor of 3.5 over the next 20-year period. The demand for energy is closely linked to the economic growth rate, and variations of over 25 percent in demand can occur over a 20-year period for a one percent change in the economic growth rate. Given the current plans for development of energy resources, the deficit in energy supply that will have to be filled with imported fuels is expected to increase from the current level of 28 percent to 62 percent of the demand by FY 2025. While the exploitation of the limited reserves of oil and gas is at an adequate level, the country is rich in coal and hydel resources which are grossly underutilized. The development of lignite reserves in Thar, that constitute bulk of the country’s coal resource, is constrained mainly by challenging mining conditions, while bulk of the hydel opportunities are situated in remote locations where infrastructure development poses a challenge. Pakistan has, therefore, priority to import of natural gas, LNG, and power from resource
Based on current import parity prices, corresponding to a crude oil price of US$90/bbl, the economic cost of energy supplied in 2006 is estimated at US$ 22 billion, of which about half is attributable to oil used in the transport sector. The cost of power generation at current energy prices ranges from US cents 14/kWh for fuel oil fired plants, to 7 cents/kWh for power plants operating on imported gas. With the current plans for the development indigenous resources, and unconstrained availability of imported gas and LNG, the Base Case cost of imported fuels is expected to increase from US$ 7 billion in FY 2006 to US$ 58 billion in 2025. Assessment of long-term cost of energy supply under alternate scenarios indicates that, compared to the Base Case, the aggressive development of the Thar coal resource will help to reduce the annual energy import bill by US$ 1 billion by FY 2025. In case pipeline gas imports do not materialize, substitution of imported gas with imported LNG and coal will increase the cost of imported energy by over US$ 4 billion by the same year. The corresponding cost of delays in development of large scale hydel projects is estimated over US$ 5 billion annually by FY 2025.
Key elements of an action plan being pursued by the government to enhance the energy supplies, and to manage risks associated with delays in resource development and rising world energy prices include fast-tracking imports of natural gas and LNG from the neighboring countries to meet the near-term energy requirements, and accelerated development of Thar coal and of large-scale projects for hydroelectric power generation to ensure energy security in the long term. In addition to the development of conventional energy resources, programs are being implemented to enhance the efficiency of the energy sector through mainstreaming of renewable energy, and integrated energy planning and demand management to optimize the use of available resources.
MEETING PAKISTAN’S ENERGY NEEDS
With a population of over 160 million, Pakistan’s economy is currently growing at a rate of about 7 percent, supported mainly by an expanding industrial sector that contributes 38 percent of the economic output and is growing at a rate of 12.5 percent. Per capita energy consumption of the country is estimated at about 14 million BTU, which is only a fraction of that of other industrializing economies in the region such as Thailand and Malaysia. 40 percent of the households have yet to receive electricity, and less than 20 percent have access to pipeline natural gas. Sustainable development of the energy sector is essential for it to be able to play its role in the economic and social development of the country.
elements of the policy response of the country to meet the energy requirements of its expanding economy are summarized below:
- Adequate Energy Supplies: Energy sector plans focus on the development of indigenous energy resources, the import of energy at competitive prices to meet the deficits, and the development of infrastructure and systems for the delivery of energy to consuming sectors, reliably and efficiently.
- Security of Energy Supply: Recognizing the uncertainty in the international energy markets, and emerging requirements of other developing economies such as India and China, the energy plans focus on maximum utilization of indigenous energy resources to lower dependence on imported energy, and diversification of the energy mix to manage risks and external shocks.
- Long-term Viability of the Energy Sector: A cornerstone of the government’s policy is to assure long term sustainability of the energy sector by moving from a predominantly state-controlled structure to one in which the government maintains a strategic presence, and the private sector plays the leading role in its development. To meet this objective, and to avoid overlaps and conflicts, there is now appropriate distribution of responsibilities within government institutions for policy formulation, regulation, and administration
Policies and regulations are being formulated to provide incentives and encourage private sector participation in the sector. Sustainable pricing regimes are to be put in place that account for cost-of-service and provide targeted subsidies, transparently, to address social and environmental concerns.
Implementation Approach and Strategy
To achieve these objectives, the government has adopted an approach based on the implementation of an integrated energy development plan that into account cross-sectoral economic impacts of energy options across the supply and demand chain. Policies and plans in place are aimed at the accelerated development of indigenous conventional energy resources including coal, oil and gas, hydel (hydroelectric) by providing appropriate incentives, and a level playing field, to the private sector. Plans for meeting the energy needs of rural areas place emphasis on the exploitation of renewable energy potential, taking into account the economic cost of delivering energy from alternative sources, and the benefits associated with decentralized resource development. Longer term strategies focus on meeting energy deficits by establishing energy trade corridors to capitalize on Pakistan’s proximity to countries in the Middle East and Central Asia.
Primary Energy Supply and Demand
Pakistan has a fairly well-developed energy infrastructure. The natural gas transmission infrastructure connects to over 4 million households and commercial establishments in addition to the bulk of the industries and thermal power generating units in the country, and includes about 10,000 kilo meters of high pressure transmission pipelines and about 250,000 horsepower of compression capacity. A network of oil pipelines transports crude oil and products to inland refineries and market centrs. The ports at Karachi are equipped to handle import of crude oil and petroleum products that account for a major fraction of the country’s demand, and also limited quantities of coal. The power transmission and distribution network serves over 16 million residential, commercial and industrial customers, and includes over 40,000 kilo meters of high voltage transmission lines.
Exhibit 1 summarizes the primary energy supply picture for the country. Total energy supplies were 58 million tons oil equivalent (MTOE) in fiscal year (FY) 2006. With an annual production of 3,836 million cubic feet per day (mmcfd) gas accounts for 51 percent of energy supply, followed by oil at 28 percent, hydel at 13 percent, and coal at 7 percent. Pakistan currently meets less than 15 percent of its oil demand from its indigenous resources.
FY 2006 energy consumption by sector is illustrated in Exhibit 2. The industrial sector dominates the market with 43 percent of the demand, followed by the transport sector at 28 percent, and the residential at 21 percent. The power sector accounts for 25 MTOE or 43 percent of energy supply. 52 percent of power generation is with gas, 16 percent with oil, and 29 percent is hydroelectric. Nuclear energy accounts for about 1 percent of power generation. The current installed power generation capacity in the country is about 19,000 megawatt (MW).
Exhibit 1: Total Primary Energy Supplies: 58 Million TOE and
Energy Supply for Power Generation: 25 Million TOE
Source: Pakistan Energy Yearbook 2006
Exhibit 2: Final Energy Consumption: 34 Million TOE
Source: Pakistan Energy Yearbook 2006
Projected Energy Demand and Deficits
Projected energy demand, assuming a GDP growth rate of 6.5 percent is summarized in Exhibit 3. Over the next 20-year period, overall demand for energy is expected to increase by a factor of 3.5, from a current level of 58 MTOE to 198 MTOE. These projections assume the implementation of current long term plans for power generation, with emphasis on the development of coal, hydel and nuclear resources for this purpose, consistent with the government’s policy to maximize the utilization of indigenous resources and diversify the energy mix.
Exhibit 3: Projected Energy Demand
|Million TOE||% Share|
Source: Medium-Term Development Framework: 2005–10, Planning Commission
Note: Government of Pakistan adjusted to GDP growth rate of 6.5% and updated for power generation plan
The share of oil in the energy mix is expected to drop in view of higher oil prices in the international market, and the government’s policy to switch to lower cost alternatives for power generation, including renewable and nuclear sources.
Sensitivity of demand for energy to the economic growth rate is illustrated in Exhibit 4. Alternative scenarios for economic growth assuming growth rates of 5.5 percent and 7.4 percent were considered to test the impact of GDP growth rate on the demand for energy. The 7.4 percent scenario corresponds to the “optimistic” economic growth rate scenario stated in the government’s Medium-Term Development Framework (MTDF), while the 5.5 percent represents a “reasonably conservative” outlook. Over the next 20-year period, the demand for energy under these scenarios varies by more than 25 percent, dropping to 155 MTOE for an economic growth rate of 5.5 percent, and increasing to 246 MTOE for an economic growth rate of 7.4 percent.
Projected indigenous energy supply and deficits corresponding to a 6.5 percent GDP growth rate are summarized in Exhibit 5. Domestic oil and gas production is expected to increase marginally in the near term but decline in the long run.
Exhibit 4: Energy Demand at Various Economic Growth Rates
*Medium-Term Development Framework: 2005-10. Planning Division assumed a GDP growth rate of 7.4%
Exhibit 5: Projected Energy Deficits (Million TOE)
|Renewable and Nuclear||1||3||12|
|Total Indigenous Supply||42||61||75|
|Total Energy Requirement||58||110||198|
|Deficit as % of Energy Requirement||28||45||62|
Source: Medium-Term Development Framework: 2005–10, Planning Commission
Note: Government of Pakistan adjusted to GDP growth rate of 6.5% and updated for power generation plans
Availability of coal, hydel, nuclear and renewable energy is projected to improve significantly, in line with current resource development plans. The availability of energy from these sources, however, will not be enough to meet the growing demand of the economy. The energy deficit which is presently 16 MTOE, or 28 percent of the energy demand, is expected to increase to 122 MTOE by 2025, corresponding to 62 percent of the demand. This outlook clearly indicates a need to accelerate the development of the indigenous resource base and to supplement this with arrangements to acquire affordable energy from reliable external sources.
Energy Resource Potential and Risks
The energy resource potential of the country is illustrated in Exhibit 6. The reserve to production ratio is currently 14 and 21 for oil and gas, respectively, while for coal it is 678. Only about 16 percent of the hydel potential has been realized. There are major unexploited reserves of coal in the Thar Desert in the Sindh province. The development of the coal reserves, however, presents significant challenges. The coal is of relatively low quality with a heating value of 5,700 Btu/lb, sulfur content of over 1 percent, ash over 6 percent, and moisture of about 50 percent. The overburden to be removed to access the coal seams is soft and has a depth in the range of 175-230 meters, indicating the need for capital intensive open-pit mining. Limited water availability also poses a challenge and infrastructure needs to be put in place to support coal mining and coal-based power generation at this remote location.
There is recognition of the economic benefits associated with power generation and water storage of water for agricultural use and the government’s plans therefore include an aggressive hydroelectric power development program.
Exhibit 6: Indigenous Resource Potential
|Oil||44 MTOE||324 Million bbl|
|Gas||628 MTOE||29 tcf@900 btu/scf|
|Coal Measured||1,477 MTOE||3,303 MT|
|Coal Inferred||25,220 MTOE||56,382 MT|
|Coal Hypothetical||50,903 MTOE||113,798 MT|
|Installed Hydel||6,595 MW|
|Potential Hydel||41,722 MW|
|Fuel||Annual Production||Reserves to Production Ratio|
|Oil||24 Million bbl||14|
|Hydel Potential Realized||16%|
Source: Pakistan Energy Yearbook 2006
Private Power and Infrastructure Board, Pakistan Hydel Power Potential
Most of the sites are in the mountainous regions in the north where construction of access roads and resettlement of affected populations pose significant challenges.
In view of the outlook for the exploitation of the domestic resource base outlined above, Pakistan has given high priority to tapping the energy resources in the region, and several projects for import of natural gas from the gas-rich countries in the Middle East and1Central Asia have received serious attention. These include pipelines for import of gas from Turkmenistan, Iran, and Qatar. Liquefied Natural Gas (LNG) import projects are also being implemented. In addition, import of power from Tajikistan and Kyrgyzstan, which are rich in hydel resources, is also under active consideration. The development of these options for importing energy has been constrained by the sensitive regional security environment, the volatile international energy market, and the complexities associated with the formulation and implementation of large cross-border energy transactions.
Economic Considerations in Energy Planning
Exhibit 7 illustrates the comparative economic costs of fuels for the country, based on a crude oil price of $90/bbl, and prevailing prices of other fuels in the international market. While the delivered cost of local and imported coals is under $3/MMBtu that of natural gas and LNG is estimated at $6 and $10/MMBtu, respectively. The delivered prices of petroleum products would be substantially higher than those for coal and natural gas, and are currently estimated at about $14/MMBtu for high sulfur fuel oil (HSFO) and – $20/MMBtu for transport fuels including diesel and motor gasoline. The economic cost of energy supplied in 2006 (Exhibit 8) on the basis of these prices is estimated at over $22 billion, of which 47 percent is attributable to the oil used in sectors other than power (mainly transport
Exhibit 7: Comparative Cost of Fuels
Note: HSFO price corresponding to US$60/bbl crude. Delivered price of imported coal assumed at US$75/ton
and agriculture), 11 percent to HSFO used mainly for power generation, 19 percent to gas used in the industry (including the fertilizer industry), residential, and commercial sectors, 12 percent to gas used for power generation, and the remaining 11 percent shared by hydel, coal, and nuclear energy. In view of this distribution of energy costs, end-uses that require special attention in energy planning are oil use in the transport sector and gas use for power generation.
The cost of power generation for alternative technologies and fuels, assuming prevailing capital and operating costs and economic cost of energy (as indicated in Exhibit 7) are illustrated in Exhibit 9. While the economic cost of electricity produced from coal, natural gas, hydel, and nuclear power plants would be in the range of US cents 5-7/kWh, the cost of producing electricity from LNG approaches 10 cents/kWh, and that from HSFO exceeds 13 cents/kWh. Therefore, priorities for meeting the power needs of the country, over the medium to long-term, include the development of indigenous coal, hydel, renewable, and nuclear resources and the import of gas.
Energy Options and Scenarios
While the cost of meeting the energy requirements of a rapidly expanding economy will be substantial, the country has a range of options available to manage the supply and demand for energy. The choices made will determine the extent to which the risks associated with variations in the prices and availability of fuels in the international market can be managed, and the cost of delays or inability to develop indigenous resources can be absorbed. The following cases were analyzed in terms of total energy requirements, energy deficits and imports, and cost of imported energy:
- Base Case: Unconstrained gas import
- Low Gas Case: Imported gas not available, LNG and imported coal to replace imported gas in Base Case
Exhibit 8: Cost of Energy, US$22,121 Million
Source: Assumed prices of energy: Oil (power) 13.8 US$/MMBtu, Oil (non-power)
20.02 US$/MMBtu, Gas 6.29 US$/MMBtu
Note: Coal 2.70 US$/MMBtu, Hydro and Nuclear 5.73 cents/kWh
Exhibit 9: Cost of Power Generation
Exhibit 10: Competing Energy Scenarios
1 Energy Conservation Scenario: Technical potential estimated at 15% for power, 10% for oil and gas in industry and transport sectors. Achievable by 2025 assumed at 50% of technical potential.
- High Thar Case: Thar coal to replace imported coal for power generation in Low Gas Case
- Low Hydel Case: Hydel capacity additions reduced by 30 percent, imported coal to replace hydel power generation in Low Gas Case
- High Nuclear Case: Additions in nuclear capacity increased by 100 percent in 2015 and 200 percent in 2025 over the Base Case
- Conservation: Energy conservation applied to the Base Case
The Base Case assumes that the country will be able to import natural gas to meet the emerging energy deficits. This is the least cost option given the country’s proximity to gas surplus regions, the opportunity of transporting gas through pipelines, and the economic advantage offered by gas in end-uses such as fertilizer production, power generation with high-efficiency combined cycle gas turbines (CCGT), cogeneration, and compressed natural gas (CNG) use for transport. This Case assumes that the gap in power generation capacity, after accounting for the capacity planned on hydel, nuclear, and renewable sources, will be filled by CCGT units operating on imported natural gas.
The Low Gas Case represents a scenario in which imported gas is not available, and the deficit has to be made up with alternative fuels. In this case, the country would need to import LNG to meet the established demand for natural gas in the residential, commercial, fertilizer, and industry sectors, and generation capacity in the power sector that can operate only on natural gas. The gap in power generation capacity, filled by imported gas in the Base Case, would need to be filled by capacity based on imported coal.
The High Thar Case represents the option of enhanced utilization of Thar coal to replace imported coal in the Low Gas Case. The Low Hydel Case represents a case under which, on account of adverse factors, hydel capacity additions are reduced by 30 percent, and the resulting gap is filled with imported coal. In the High Nuclear Case, installed nuclear capacity was increased from 4,400 MW in the Base Case to 7,200 MW, assuming a 100 percent increase in capacity additions by 2015, and 200 percent by 2025. Finally, the Energy Conservation scenario assumes a conservative penetration rate for energy efficient technologies and demand side management, resulting in a reduction in demand of about 9 percent across the economy. Exhibit 10 summarizes the energy demand and the power generation capacity required in each of the above scenarios.
The economic cost of imported fuels under the Base Case is illustrated in Exhibit 11. The cost of fuel imports under the Base Case is projected to increase from the current level of $7 billion to $58 billion in 2025, with oil accounting for 65 percent of the energy imports, followed by gas at 30 percent.
Additional cost of fuel imports under each of the scenarios examined is illustrated in Exhibit 12. The annual additional cost of imported fuels for the Low Gas Case is estimated at $1.2 billion in 2015, increasing to $4.5 billion in 2025, and represents the additional cost of energy imports in case the country is unable to import gas through pipelines. Comparable figures for the Low Hydel Case are $1.6 billion in 2015 and $5.4 billion in 2025 and for the High Nuclear Case are $1.0 billion in 2015 and $3.0 billion in 2025. The High Thar Case costs about $1.0 billion in 2025 over the Base Case, on account of the lower estimated cost of Thar coal.
Exhibit 11: Base Case Forecast of Fuel Imports
Exhibit 12: Additional Cost of Imported Fuels
Conclusion and Priority Areas for Action
An assessment of the current and projected energy requirements of the country and additional costs for energy imports under alternative scenarios and options leads to the following conclusions:
- While Pakistan has substantial coal and hydel resources, it is not possible to develop and utilize these resources in the short term in view of inherent constraints.
- The dependence of the country on imported energy is therefore expected to increase considerably in the near to medium term.
- Gas import pipelines can deliver energy at competitive prices in the near term to meet the demand of consumer segments such as the residential, industrial, and power sectors.
- Development of indigenous coal reserves and nuclear power, over the medium term, can secure the country against high energy prices in the global markets and the risks associated with large scale development of hydel resources.
- Development of indigenous coal can be coupled with coal import for greater diversity in the mix of imported fuels.
Key elements of an action plan to meet the energy requirements of the country in the long term, to balance the risks associated with rising world energy prices and to protect the economy against uncertainties in development of domestic resource base include:
Import of Energy
- Implementation of gas pipeline projects, LNG projects, and projects for import of electricity from Central Asia
Development of Indigenous Energy Resources
- Enhanced oil and gas production
- Coal mining and coal based-power generation
- Coal gasification, coal-to-liquid conversion, and coal bed methane production
- Enhanced hydroelectric power generation
- Enhanced nuclear power generation
- Main streaming renewable energy
Energy Efficiency and Management
- Optimization of energy mix
- Demand side management in the industrial sector
- Mass transit for major urban centers