LNG Problems and the Road Ahead

EDITORIAL: It has become painfully clear that no matter how much the government and the opposition try to present their respective sides of the story about all the problems with the Liquefied Natural Gas (LNG) sale-purchase mechanism, the debate only gets murkier and rendered much more difficult for people to decide whether they are being fleeced or facilitated. It is really quite remarkable that representatives of the ruling Pakistan Tehreek-e-Insaf (PTI) and its predecessor in office Pakistani Muslim League-Nawaz (PML-N) can use the same datasets to back two very different arguments about which of the two has done more harm to the treasury. Yet the fact is, as often argued in this space, that the previous administration agreed to a very stringent deal that allowed virtually no flexibility to the buyer because it is ‘Take or pay’ and not ‘Take and Pay’ but then, there argument is this is what happens in a ‘sellers market’ which the LNG is. The problem lies in that we have not paid attention to building sufficient storage for LNG so that we can take advantage of seasonal variations in the spot market to bring down our average cost of the product. And now that we are contractually caught in it the best the government can do is to pay urgent attention to augmenting storage and transmission capacity to trim costs wherever and whenever possible.

Ideally, although it is important to sort out LNG supply chain bottlenecks to ensure price stability for the consumer, the government should look away from fossil fuels for the long term. The collapse in oil prices and the subsequent buyer’s market, while it suits countries like Pakistan just fine for the time being, is in fact indicative of the coming end of the fossil fuel industry. Oil producers can get together and maintain prices for a while, through OPEC quotas and the like, but such steps will not be able to resist the winds of technological change for too long. As more and more countries decide to go green and turn towards wind and solar energy, demand for its traditional sources will automatically drop. And at a time when price shifts of a few dollars-per-barrel in this or that direction can threaten budget targets of countries that produce oil and gas, it also sounds the death knell for power blocs that have dominated the energy market for more than half a century.

It is in Pakistan’s interests also to graduate to cleaner, renewable forms of energy in its power mix. Some of the world’s more advanced countries are in the process of taking a very sharp turn in this direction and soon enough developing countries will also line up. So now, before increased demand drives up input prices, would be a good time to get into the game. Japan, for example, already seems nicely on track to eliminate gasoline powered vehicles by the mid-2030s in a bid to reach net zero carbon emissions and generate nearly $2 trillion a year in green growth by 2050. It will be closely followed by a number of leading countries in the European Union as the region becomes increasingly obsessive about containing such emissions. So it seems wind and solar energy are about to do to oil and gas industries what the internal combustion engine did to the horse and carriage. Soon enough the competition will diversify and improve and only niche players from the old world will be left.

It is important to remember that no change can come overnight and this particular issue will require extremely careful handling for a while to come. The prime minister has ranked energy as the number-one problem faced by his administration at the moment. He must not repeat old mistakes that resulted from focusing on short-term fixes. He must instead look to give the country a long-term and sustainable energy plan that will require diversification on a very large scale.

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