Pakistan continues to grapple with challenges in meeting the natural gas demand, driven by increasing energy demand, infrastructure constraints, and supply-demand imbalance. Pakistan is facing a critical situation with its natural gas reserves, which have been depleted by more than 69% of the total reserves.
The total reserves of natural gas resources of Pakistan corresponded to 63.24 trillion cubic feet (TCF). Out of the total, 43.73TCF has already been utilized, leaving a remaining balance of 19.51TCF. At present, natural gas production stands at 3,390MMCFD (million cubic feet per day). At the current production rate, domestic natural gas is projected to be depleted in fifteen years. Pakistan boasts an impressive gas network spanning over 13,775 km of transmission, 157,395 km of mains, and 41,352 km of service gas pipelines to meet the needs of over 10.7 million consumers nationwide. Approximately 520,801 new consumers are expected to be supplied with natural gas during FY2024. The government is actively working on policies to boost domestic gas production and increase imports to meet the growing energy needs of the country.
The pipeline is set to transport 310 billion cubic feet of gas annually in its initial phase, with an extendable maximum capacity of 1.4 trillion cubic feet. Currently, Iran has geared a 700-mile pipeline on its end, while Pakistan has primed a 500-mile pipeline with further progress put on hold.
Iran touts an estimated 1,200 trillion cubic feet (Tcf) of proved natural gas reserves, making it the world’s second-largest after Russia. Yet, Iran’s potential to maximize energy product exports is hindered by the strict US sanctions, limiting its export capabilities. These sanctions restrict access to global markets and financial networks, which hampers trade. The Iran-Pakistan pipeline project has encountered numerous obstacles, such as geopolitical tensions, financial constraints, and international sanctions, resulting in slower progress than formerly anticipated.
In February, the Cabinet Committee on Energy (CCoE) made the decision to begin work on the initial phase of the 80-km segment of the Iran-Pakistan (IP) gas pipeline within Pakistan, running from the border to Gwadar, to address Pakistan’s pressing natural gas demands. Pakistan sought an exemption from the U.S. regarding the sanctions on Iran to restart the IP gas pipeline project. However, the U.S. declined to provide any leeway. The U.S. firmly rejected the project but also shared its concerns about it.
Pakistan needs to prioritize the completion of the IP gas pipeline project this year to avoid a hefty $18 billion penalty, which is three-fold the current foreign exchange reserves of the State Bank of Pakistan. Pakistan is a sovereign country and has the supremacy to make decisions in the best interest of its people. The IP gas pipeline project has the potential to significantly impact the welfare of the general public by ensuring energy security, as 78% of households currently lack access to natural gas. While households with access to natural gas face 16 hours of load-shedding due to limited availability.
The IP gas pipeline project has the potential to enhance the well-being of the people of Pakistan by cutting the price of gas by two-thirds. As an example, the pipeline is priced at $11 per million British thermal units (MBTU) in contrast to the $18 per MBTU of imported LNG. This project will save $2.3 billion annually by substituting the expensive imported furnace oil currently used as fuel in power plants in Pakistan.
This project will enhance Pakistan’s geo-strategic position by potentially turning it into a corridor for supplying natural gas to energy-deficient countries such as China, India, Bangladesh, and others.
Pakistan should prioritize the ongoing execution of the IP gas pipeline project while managing its diplomatic relationship with the U.S. In the past, the U.S. has imposed sanctions on the import of Russian gas supplied through pipelines across European countries. The sanctions were a direct result of Russia’s invasion of Ukraine. However, 15% of gas in European countries is still imported from Russia, accounting for 8% of Russian gas exports. It is worth mentioning that 29 out of 31 NATO member countries, major allies of the U.S., are from Europe and did not fully implement U.S. sanctions on Russia. They justify imports from Russia by pointing to the self-interest of their citizens and the need to sustain their industrial sector.
Considering the significant benefits of this project for Pakistan, the newly elected government must devise strategic solutions to complete the gas pipeline, notwithstanding the U.S. sanctions on Iran. The project’s success will not only benefit the people of Pakistan but also enhance the government’s political capital as it moves forward with the completion process.
Waqas Shair
The writer is a research associate at the Center of Economic Planning and Development (CEPD), Minhaj University Lahore. He is pursuing his Doctor of Philosophy degree at the University of the Punjab. He can be reached at waqas.eco@mul.edu.pk; waqasshair689@gmail.com