Posted - August 01, 2012 - AKHTAR ALI - Business Recorder - PakistanBy now, it is a cliché that the country is passing through an energy
crisis; of both gas and electricity. Gas and electricity are independent
issues and also have a mutual influence. If one goes by the official
figures, there is a shortfall of about 25% in electricity and of 50% in
gas. Cheap or reasonably priced gas is a blessing but the kind of prices
that are being asked by foreign suppliers, be it LNG or pipeline
projects, such supplies are going to be acutely unsustainable.
There has been a long and concerted interest in energy import
projects, which despite high prices have not been implemented for a
variety of reasons. Had similar effort been applied to the development
of indigenous resources, the situation would have been different. In
this space, we would take stock of the choices available to GoP with
respect to gas supplies.
LNG and other imported gas projects The government is
again reviving LNG import projects which were earlier reported to have
been buried under their own load of excessive cost and lack of
competitive pricing. It was hoped that due to extremely low natural gas
pricing as prevail these days in the US, some surplus LNG earlier
destined for the US would be available at cheaper rates. The Minister of
Petroleum visited Algeria probably in this context.
It is widely known that LNG is prohibitively expensive, almost
as expensive as oil itself. There is only one economic rationale,
however, in the import of LNG which is the much higher thermal
efficiency of Combined Cycle (NGCC) plants running on natural gas. Thus
despite higher price as much as that of oil, the unit cost of
electricity is going to be lower than oil based electricity. Besides,
Pakistan's domestic and industrial systems are based on gas; cooking,
heating and industrial processes such as boilers and others. Oil
involves elaborate logistics and gas is piped unto the last point of
consumption. Thus undoubtedly gas is a great fuel. And that is why the
Iranis and the Qataris keep demanding high prices despite the hardship
faced by us. Admittedly, commodity is not sold on compassionate grounds,
particularly when private companies are involved in between. But this
is also true that for a long time gas has been traded in a more amenable
regime of floor-ceiling benchmarks. The current system of direct and
ruthless linking with oil prices rocks the economies of the purchaser.
Gas producers of the region are perhaps convinced that the days of low
oil prices are perhaps over and will never come back again and thus do
not find any reciprocal utility to maintain a floor-ceiling regime.
However, it is difficult to swallow a gas pricing regime which tries to
extract 50% higher prices from the poor Asian countries that it gets
from European destinations. When market is not acting to remove these
distortions, there are persuasive reasons to look for political and
administrative instruments and solutions. Governments of the regional
gas importers and exporters should sit together to get a viable formula
to ease the situation.
It is incomprehensible that GoP continues to pursue LNG option
despite trying and failing in getting a reasonably priced LNG supply
package. At the height of circular debt created as a result of
cost-price differential, incurring a liability tying oneself up in a
20-year expensive liability would be highly undesirable. Unless there is
a satisfactory arrangement supplying LNG at the prices that are
afforded to Europe, LNG would be a highly undesirable option.
The ups and downs of local gas Gas at Sui was discovered
when I was a child and was told at that time that it would last more
than a century. We were facing a gas crisis even after discovering many
times more gas since then. And not long ago, in the year 2005, the then
chairman of the Planning Commission, in a widely attended presentation
to the then President Musharraf and his PM Aziz, gave an Energy Security
Plan whereby 80,000 MW of electricity was to be produced by gas in
2025. Only 12-13 years are in between those fateful years of 2025, we do
not have enough gas to fire a few thousand MW of power plants. It was
no ordinary paper written at a junior level. It is necessary and useful
to remind the reader of such egregious demonstration of the lack of
sufficient intellectual capacity of the individuals involved and the
vulnerability of the system. Nobody could stand up and draw the
attention to the inadequacy and lack of realism in the proposed plan.
Neither did the duo of the president-prime minister could ask a plain
and simple question? The people and the system are the same. On the
other hand, despite the lack of realism, there was some basis for it and
that was the potential for development for local gas resources.
Unfortunately, however, neither Musharraf, nor his successor did much in
this respect. Instability in the gas potential regions is made a
scapegoat, although throughout the developing world such regions suffer
from some problems of this sort. This problem would remain till a
consensus is reached among the stakeholders over the control and
management of these resources and a fair cost-benefit sharing concept.
Until then the business has to somehow go ahead. The GoP has come up
with incentive schemes such as Tight Gas Policy and an upward trend in
enhancing procurement prices of locally produced gas. The policy has yet
to show its results. May be there are implementation snags and it is
here that problems are usually there.
Thar coal and gasification thereof Electricity, gas and
fertilisers and many other chemicals can be produced out of coal
including the type of coal (lignite) that we have in Thar fields. There
are three routes for this; a) conventional mining and production of
electricity at site, which is the most widely, practised route and which
has been generally adopted by the government; b) underground coal
gasification (in-situ) obviating conventional mining, the so-called
Samar Mubarakmand route (a la centrifuge route of A. Q. Khan in the
yesteryears of nuclear controversy) ; and c) Over ground coal
gasification in which process coal is conventionally mined, brought to
surface and then gasified. All the three routes are viable and have
their own merits and demerits.
Coal gasification, especially the Underground Coal Gasification
(UCG) is relatively new and less established than the others, although
there is a project in Uzbekistan working for the last few years and the
Chinchilla project which is operating on UCG for the last 10-12 years in
Australia. The problem is, as mentioned elsewhere, that the big names
have not yet joined the wagon of UCG. They will do it eventually. We
have seen this in the case of personal computers which IBM joined quite
late and Siemens delayed its entry into Wind Power and entered into it
by buying off a failing Wind Turbine manufacturing company. The problem
is that the large investments and the risk management that such projects
require only come through such large companies and big names. However,
until the big names make that fateful decision, not much can come out of
the UCG potential.
It is patently obvious that UCG, uses the earth as a vessel,
obviating the need of expensive gasifiers built on the surface and
secondly completely eliminating the conventional mining, it should be
the cheapest and the most economical option. In deeply buried coals at
1000 meters or so, UCG has definite advantages and cost effectiveness.
Also more coal is recovered through UCG than conventional mining in
which 30% or so of coal remains in earth and is usually not excavatable.
However, most established companies like GE, Shell and Siemens who have
considerable experience and interest in coal gasification have not gone
for UCG up till now. All recent contracts made in China are for
conventional on-surface gasification. Only a much lesser known company
founded by Russian immigrant to North America is busy in all purported
projects and studies. It has made amazing claims which are difficult to
believe, such as CAPEX of 799 Canadian dollars per KW and a unit cost of
electricity of only 1.9 cents. These are the figures that are being
probably echoed by our local UCG proponents. It is very hard to digest
such impossible figures, as even the diesel engine-based power plants
usually cost much more than this figure. The cost would be at least
equal to or more than the combined cycle power plants which cost around
1200-1600 USD per kW. We should not be carried away by the fantastic
claims, although there is some scope of optimism for lower costs due to
the reasons cited earlier in the beginning of this para.
It would be a very good thing that could happen to us, if all of
this is correct and is implemented in the kind of dire circumstances
that we find ourselves in, having urgent needs and no money. As we have
said earlier, whatever Dr Samar Mubarakmand's team has done till now and
plans to do in the next two years are a commendable achievement. But
this is not enough. The problem is that unless some EPC contractor of
repute and a technology supplier and an equipment vendor of repute and
experience do not back the process, no banker would be lending the kind
of money that would be involved. There are issues of reliability,
warranties and guarantees. Having made nuclear weapons with unlimited
political money was different. Nuclear reactors could not have been made
by those who successfully made nuclear weapons. Chinese are building
nuclear reactor with hardly any local content.
Despite all these constraints and issues, one would not like to
discourage a project that pertains to develop local technology. On the
other hand, one would expect some formal organisational structure and
mandate so that the know-how accumulation takes place and is
depersonalised. It is alleged by the opponents of the project with some
truth (but not lacking vengeance) that there is a small team sitting at
NESCOM, which stretches itself to almost every subject and issue. They
misguided the nation on Reko Diq project and have managed to block a
direct foreign investment of 3.2 billion USD. They claimed that they
could do the same thing in 100 million USD or so. It is patently obvious
that these claims were immature and untrue. Most of the skepticism to
the local UCG project stems from this kind of history of this team.
Despite all this, one would like to recommend that the local UCG project
be allowed to continue. But not much of immediate consequence should be
expected out of it, except a small output of limited reliability. Even
Chinese are buying technology from the large companies like GE, Siemens
and Shell and warding complete projects to them.
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