Building strategic reserves for energy security

Pakistan’s current energy mix is heavily tilted towards oil and gas. Any disruption to their supply chain immediately throws the entire economy off balance. This was amply demonstrated by the disturbance to oil supplies in January 2015 and then in the middle of last year.

Similarly, in the case of gas, we are witness to extended queues of vehicles before compressed natural gas (CNG) stations – a familiar sight for years till 2016, which caused colossal losses to the economy. The prevailing shortage of gas is again proving to be a challenge to the utilities concerned to keep their customers satisfied.

The above observations necessitate the establishment of storages on priority. This would provide the government with the required flexibility and manoeuvrability in the energy supply chain, which would not only serve as a shock absorber but would also save billions of rupees in routine operations.

The US had started establishing strategic petroleum reserves in 1975 after the oil embargo of 1973-74 and now its reserves stand at 797 million barrels.

Maintaining such strategic reserves in underground storages has been a common practice for the last 70 to 80 years. Five methods of storage are in vogue. The selection of a site in each case is dictated by, amongst other factors, geological conditions. As water plays a critical part in providing the required seal, accessibility to the same is highly essential too.

The following brief details about the five methods may help: First is storing gas in aquifers, which is more or less based on the same concept as followed for the depleted oil and gas fields.

Second is mined rock cavern, which requires the creation of an underground gallery by excavation or conversion of an underground void for the purpose. Hundreds of such hydrocarbon storages exist worldwide.

The concept is based on water being pumped into the cavern and pushing the oil up. Nordic countries have more than 100 such storages. Similarly, Korea has a storage capacity equal to about 106 million barrels in such caverns while the UAE is establishing such a facility for 42 million barrels at a cost of $1.2 billion. Third, abandoned mines can be turned into storages and first such storage was established in Sweden 70 years ago. Such oil storages exist in the US, Belgium, France and Sweden and a few have been converted into gas storages too.

Fourth, salt caverns are carved out of the underground salt domes through “solution mining”. The process involves drilling a well into a salt formation and then injecting water for dissolving the salt. Stored oil is extracted by pumping brine under the same and forcing it out. There are more than 800 such storages in the US and Europe.

Fifth, storing oil and gas in depleted oil and gas reservoirs, which is the most common method. Such storages usually use the existing production infrastructure. Approximately 75% of underground natural gas storages are in depleted gas reservoirs.

Feasibility studies

The idea is not wholly new to Pakistan. Probably, a study was conducted in the early 1990s to review Sui as a candidate followed by another study in the early 2000s under which a gas condensate field named Sadqal was identified as a potential storage for gas.

Sadqal, situated near Fateh Jang, is strategically located near the gas transmission network in the north (Punjab and Khyber-Pakhtunkhwa both).

Later, a feasibility study for gas storages was undertaken by a French consultant and completed in 2007. The study identified a few sites for storage. The Asian Development Bank is currently assisting Pakistan in updating the study through Ramboll engineering and consultancy company of Denmark.

The concept has remained under consideration since the early 2000s. In my view, sufficient strategic and economic justification exists for Pakistan to simultaneously undertake storage projects for both oil and gas on a priority basis.

India already has such storage capacity of around 37 million barrels of oil and it is in the process of augmenting it further. It floated the idea when the economic fallout of the Gulf War of 1990-91 severely impacted its economy.

According to geoscientists, salt layers (potential storages) do not exist in Sindh and Balochistan but they are present in the north extending to Kohat. There are around 10 depleted oil fields in that area which can be studied in the following perspective: development of a depleted reservoir as a potential storage and using the salt layer in a field for creating storage caverns.

Experts’ team

In order to ensure timely and effective implementation of the proposals, a dedicated team comprising professionals needs to be constituted on priority. The team should include a petroleum engineer with extensive and versatile international experience of reservoir and production engineering, and project management; a petroleum geologist with extensive international experience; and an experienced project professional.

This team, which will form the nucleus, should be supported by a high-class hydraulics engineer, mining engineer, materials engineer and experts of other disciplines such as commercial, finance and supply chain.

The task requires the development and implementation of a well-knit technical and commercial framework for financing, establishing, filling and operating the storages. The above team can be assigned the task to develop the framework along with budgetary estimates, implementation philosophy, plan and timeline.

In view of its significance for national energy security, the task is required to be treated with the same importance as other strategic functions. Therefore, it is essential to put in place a fully professional and functional governance model ensuring access for the team concerned to the decision-making forums. This may require the setting up of a dedicated special purpose vehicle (SPV) too.

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