US natural gas prices have fallen below $2 per million BTU (approx 1000 cubic feet), about one-sixth of the price Pakistan has agreed to pay for Iranian gas. With over 50 trillion cubic feet of known shale gas reserves in Sindh alone, Pakistanis can also enjoy the benefits of cheap and abundant source of energy for decades via the shale gas revolution already sweeping America.
Increased production of gas from shale rock in the US has created a huge new supply, pushing down gas prices from $13/BTU (million British thermal units) four years ago to just $2/BTU today, even as the price of oil has more than doubled. By contrast, the Iran pipeline gas formula links the gas price to oil prices. It means that Pakistan will have to pay $12.30/BTU at oil price of $100/barrel, and a whopping $20/BTU for gas if oil returns to its 2008 peak of $150/barrel.
To encourage investment in developing domestic shale gas, Pakistan has approved a new exploration policy with improved incentives as compared with its 2009 policy, a petroleum ministry official said recently. Pakistan Petroleum is now inviting fresh bids to auction licenses to explore and develop several blocks in Dera Ismail Khan (KPK), Badin (Sind), Naushero Firoz (Sind) and Jungshahi (Sind), according to Oil Voice.
In addition to the fact that the Iran gas is extremely expensive, the entire Iran-Pakistan gas pipeline project raises other serious issues as well.
Iran-Pakistan Pipeline Issues:
1. Chinese investors and contractors have pulled out of the project for fear of being hit by US sanctions on their banks and other companies.
2. Russia's Gazrom is reportedly interested but only if it gets the deal at whatever price it decides to charge without any competitive bidding.
3. Pakistani companies and financial institutions are also under threat of US sanctions if they participate in the project.
4. If the pipeline does eventually get built, it will still be several years before gas starts to flow to Pakistan.
5. If Iran is still under US sanctions when the Iranian gas imports finally begin, Pakistan will have difficulty paying for the gas using international banking system. Iran has already been suspended by SWIFT, the Society for Worldwide Interbank Financial Telecommunication, which is the main mechanism used for international bank transactions.
6. The largest chunk of Pakistan's trade deficit is accounted for by energy imports. Iranian gas bill will only worsen this deficit, contributing to yet another balance of payments crisis sending Pakistan back to IMF.
Advantages of Domestic Shale Gas Development:
1. Cheap domestic gas can start flowing from Pakistani shale in a couple of years if Pakistan can make a deal with US (and American pioneers of shale gas like George Mitchel's Devon Energy) to invest and execute on an accelerated schedule in exchange for dropping Iran pipeline.
2. Pakistan will dramatically reduce its dependence on foreign sources and save a lot of foreign exchange spent on hydrocarbon imports.
3. Gas burns a lot cleaner than coal which is also a option given vast amounts of it in Thar desert. World Bank and other International financial institutions are more amenable to financing shale gas development than coal.
4. Abundant and cheap domestic gas supplies can help reduce electricity load-shedding which is caused mainly by under-utilization of installed generating capacity for lack of affordable fuel.
Shale gas revolution began a few years ago when an American named George P. Mitchell defied the skeptics and fought his opponents to extract natural gas from shale rock. The method he and his team used to release the trapped gas, called fracking, has paid off dramatically. In 2000, shale gas represented just 1 percent of American natural gas supplies. Today, it is over 30 percent and rising.
Among the potential downsides of shale gas development is the possibility of groundwater contamination reported in some places in the United States. Such risks can be minimized by following accepted practices to protect the aquifers which are found at levels well above the deep shale rock fractured for extracting natural gas.
Cheap and abundant energy is a pre-requisite for rapid economic growth in any country. Pakistan is no exception. The sooner Pakistanis recognize and resolve this crisis, the better it will be for the south Asian nation.
Pakistan's Vast Shale Gas Reserves
US Can Help Pakistan Overcome Energy Crisis
Abundant and Cheap Coal Electricity
US Dept of Energy Report on Shale Gas
Pakistan's Twin Energy Crises
Pakistan's Electricity Crisis
Pakistan's Gas Pipeline and Distribution Network
Pakistan's Energy Statistics
US Department of Energy Data
Electrification Rates By Country
CO2 Emissions, Birth, Death Rates By Country
China Signs Power Plant Deals in Pakistan
Pakistan Pursues Hydroelectric Projects
Pakistan Energy Industry Overview
Water Scarcity in Pakistan
Energy from Thorium
Comparing US and Pakistani Tax Evasion
Zardari Corruption Probe
Pakistan's Oil and Gas Report 2010
Circular Electricity Debt Problem
International CNG Vehicles Association
Rare Earths at Reko Diq?
Lessons From IPP Experience in Pakistan
Correlation Between Human Development and Energy Consumption
BMI Energy Forecast Pakistan
US is not going to gift Pakistan shale gas technologyor a new marshall plan get over it!
Pakistan is gonna have another lost decade infact 2008-2012 its practically halfway into one!
Anon:"US is not going to gift Pakistan shale gas technologyor.."
I agree. The US will do it based on its own interests which I see as follows:
1. Isolate Iran
2. Ensure its ability to sustain its presence in the region, particularly Afghanistan.
3. Create jobs for its own people by having US companies get lucrative contracts to develop shale gas in Pakistan.
Anon: "Pakistan is gonna have another lost decade infact.."
It's just your wishful thinking.
Here's a Reuters' report on coal in Pakistan:
Yet it has one of the biggest, barely-touched, single coal reserves on the planet - the massive Thar coalfield in the northern Sindh province with 175 billion tonnes of extremely high water-content, low energy coal.
This kind of low-grade, watery coal is found in abundance in other countries, such as Indonesia, the world's biggest exporter, but it has not been economic to exploit in the past.
But high oil and gas prices, rising coal prices and new technology to dry out watery, gaseous coal or leave it in the ground but extract the gas from it instead, has prompted projects around the world.
The Pakistan government this year declared the Thar coal fields as a Special Economic Zone, with tax breaks and incentives to lure investors to develop coal gasification and mining as part of its strategy to fill the energy gulf.
"In five years, coal's contribution to the energy mix will reach 10 to 12 percent. It's minor at the moment," said Najib Balagamwala, Chief Executive Officer of Karachi-based trader Seatrade.
"The private sector is considering coal-fired plants very seriously, as there's margin there," he added.
Pakistan's energy mix has changed in recent years from mostly hydro to thermal, consisting of domestic gas and imported fuel oil, according to a report by the Asia Development Bank this month.
"The private sector is considering coal-fired plants very seriously, as there's margin there," he added.
Pakistan's energy mix has changed in recent years from mostly hydro to thermal, consisting of domestic gas and imported fuel oil, according to a report by the Asia Development Bank this month.
The supply-demand power gap at peak hours reached over 5,000 MW in financial year 2011, the ADB report said.
"The need for coal to fuel the rising demand for energy in Pakistan is well understood," said Shahrukh Khan, Chief Executive Officer of Oracle Coalfields PLC, which is developing mines in Sindh.
Of the 10 coal blocks in Thar, four have been drilled and explored by Oracle, Cougar Energy, SECMC and another un-named gasification project company, according to the Sindh province website on Thar.
Two Chinese firms are also looking to build gasification and coal mining projects in Thar, industry sources said.
The high water content of Pakistan's domestic coal makes it tricky to mine and transport long distances economically but mine-mouth power plants and coal gassification projects to capture and extract gas trapped in coal seams without mining it are much more viable, industry sources said.....
Here's a WSJ report on coal stocks surging again:
Coal stocks are helping lead the way for energy shares, which is the best-performing sector of the S&P 500 today after getting repeatedly creamed amid renewed worries about coal’s future.
Some supporters, it turns out, haven’t fled town.
FBR recently reiterated its view that as cheap as natural gas is, it won’t come close to displacing coal in the U.S. power fleet any time soon. Most of the utilities that have the capacity to switch to gas already have, they argue.
And exports, seen as a potential safety valve for unwanted U.S. power-plant coal, nearly tripled in March from a year earlier, Nomura notes.
Strict federal air pollution regulations likely to limit new U.S. coal-plant construction will do little to cool growing appetites for the fuel in China and India. U.S. miners are scrambling to expand export facilities to take advantage of that.
Plus, some stocks were just starting to look cheap; shares of Patriot Coal and Alpha Natural Resources, each recently up more than 8%, had each sank by more than 70% throughout the last year. Peabody Energy, up 7.4%, and Arch Coal, up 6.8%, also catch the boost.
Was a bit curious. Given the pace of consumption and the rate of growth seen in comsumption patterns the world over, prices of commodities such as oil and gas appear to be northbound. In such a scenario, does it not make sense for pak to resort to importing of gas from Iran (even at a slightly higher cost) for NOW, and assure energy security to pak's future generations during times when gas prices are likely to be much higher. The value of shale gas reserves, and their geopolitical implications will be much higher a decade or two later.
Anon: "Was a bit curious. Given the pace of consumption and the rate of growth seen in comsumption patterns the world over, prices of commodities such as oil and gas appear to be northbound. In such a scenario, does it not make sense for pak to resort to importing of gas from Iran (even at a slightly higher cost) for NOW, and assure energy security to pak's future generations during times when gas prices are likely to be much higher."
Price of Iran gas is linked to oil...it could go up to $20 per mBTU if the oil price returns to 2008 level of $150 a barrel.
Unlike the bulk of world's conventional natural gas reserves that are found in Russia, Iran, Venezuela and Qatar, the shale gas reserves have been discovered in rock formations spread across many parts of the world, including Australia (396 TCF), China (1275 TCF), North America (1931 TCF), South America (1225 TCF), Europe (639 TCF), South Africa (485 TCF), India (63 TCF) and Pakistan (51 TCF). Many energy analysts argue that tapping these new hydrocarbon resources could be a game-changer in terms of global economics and geo-politics.
these sort of energy infrastructure investments take place in a stable enviornment.These investments take decades to payback their shareholders.
To put the $2 per mmBTU (Rs. 180 per mmMTU) US gas price in perspective, here's what Pakistani gas companies are allowed to charge customer, according to Dawn:
DOMESTIC CONSUMERS: The minimum charges for domestic consumers have also been increased by Rs17.34 per MMBTU (million British Thermal Unit) per month. The first slab of domestic consumers (using 100 cubic meters per month) will now be charged at Rs107.87 per unit, up by Rs12.87 per unit. For the second slab (using 100-300 cubic meters per month) it will go up to Rs215.74 per unit from Rs190 per unit, up by Rs25.74 per unit.
A substantial increase has been allowed for the third domestic slab (of over 300-500 cubic meters per month and the new rate will be Rs908.39 per unit over the existing rate of Rs800 per MMBTU. Domestic consumers using more than 500 cubic meters per month will be charged at Rs1,142.75 per MMBTU, up by Rs136 per unit from the existing rate of Rs1006.
COMMERCIAL RATES: Commercial consumers like cafes, bakeries, milk shops, tea stalls, canteens, ice factories, barber shops, laundries, entertainment places including cinemas and clubs, private offices and clinics would now be charged at Rs526.59 per MMBTU, up by about Rs63 per unit. Minimum charges in this category have been increased by Rs297 per month to Rs2,485.88.
INDUSTRIAL RATES: The price for industrial consumers has been increased by Rs52 per MMBTU to Rs434.18 per unit.
The minimum charge for industrial consumers has gone up by Rs1,747 per month to Rs14,640 from Rs12,893.
FERTILISER: While rates for feedstock have remained unchanged, the price of gas used by fertiliser plants for fuel or electricity generation has been increased by Rs52 per MMBTU to Rs434.
POWER STATIONS: Gas rates for power stations of Wapda and KESC and captive power plants have been increased by Rs54 per MMBTU to Rs447 and while the minimum charge to Rs15,077 per month from Rs13,278 – up by Rs1800 per month.
Likewise, gas rates for independent power producers have been raised by Rs45 per unit to Rs377 per MMBTU.
anon:"these sort of energy infrastructure investments take place in a stable enviornment.These investments take decades to payback their shareholders."
Let me put the huge size of Pak's lucrative gas market in perspective.
Pakistan is offering to pay $6 per 1000 cft, three times the current price in the US.
At $6 per 1000 cft and current annual consumption of 1.4 TCF, it's already an $8.4 billion market. Given the demand curve, it could soon double to $16 billion market.
It's a terrific opportunity for any sane investor to make a huge ROI.
Energy sector already draws significant FII and FDI in Pakistan. It's just a matter of managing it right.
Here's an Express Tribune report on planned US AID changes:
In a bid to maximize benefits of civilian aid, Pakistan and the United States have agreed to reconsider the economic assistance programme as dividends of the $7.5 billion five-year package remain largely invisible.
Under the $7.5 billion aid package, Pakistan has so far received only $680 million in over two years. The US has also delayed approval of spending plan for Kerry-Lugar-financed projects due to strains in bilateral relations.
Shaikh, who along with his team is leaving for the US to participate in meetings of the World Bank and International Monetary Fund (IMF), will also take up the issue of coalition support fund and spending plan with US authorities, the official said.
He said the US was interested in giving assistance for economic reforms and devolution programme, besides education, health and energy.
According to the finance ministry, Rajiv Shah highlighted priority areas for funding, achievements and expectations through USAID. The key areas were energy, agriculture, education and health.
“We are steadily moving forward and we have identified what we need and what USAID can provide,” said Dr Waqar Masood, Secretary of Economic Affairs Division during the meeting.
The ministry said Shah underscored the importance of institutional stability and the need for public-private partnership in the agricultural sector.
He pointed out that they had prepared long, medium and short-term plans. In the long term, focus will be on institutional stability while in the medium term social sector will be provided support.
Shah emphasised that “despite challenges the broader bilateral relationship has faced, civilian assistance has remained steady and USAID looks forward to continuing to work together to support mutual objectives in the future.”
According to the US embassy statement, the two sides discussed the important role of economic assistance in bilateral relationship and how US civilian assistance could create jobs and raise incomes of Pakistanis.
It claimed that the US has disbursed more than $2.6 billion in assistance to Pakistan since October 2009. The assistance also includes disbursements made before the Kerry-Lugar package. Much of this assistance has focused on developing the energy sector and increasing economic opportunity for the Pakistanis.
In the energy sector, the US has collaborated with Pakistan to finance the Tarbela Dam extension project and other major energy projects which have expanded electricity-generation capacity by over 400 megawatts, bringing electricity to over six million more people.
By the end of 2013, US assistance will be adding another 900 megawatts to the national grid, providing electricity to over 14 million people, according to the statement.
Here's an ET report on Pakistan's attempts to negotiate LNG imports:
With Qatar adamant on charging a high price of $18 per unit for liquefied natural gas (LNG), Pakistan has decided to explore the option of cheaper LNG import from energy-rich Algeria.
A senior official of the Ministry of Petroleum and Natural Resources told The Express Tribune that LNG import would come up for discussion in the second session of Pakistan-Algeria Joint Ministerial Commission (JMC) scheduled to be held from April 14 to 19 in Algeria.
The petroleum ministry will lead the Pakistani side while joint secretaries of Economic Affairs Division (EAD) and Foreign Office will also attend the meeting. Petroleum Minister Asim Hussain will join later on either April 16 or 17.
Quoting agenda of the meeting, the official said main focus would be on mutual cooperation in the oil and gas sector. “Pakistan is vigorously pursuing LNG import to overcome energy crisis and the Algerian side will be asked to export LNG and set up a terminal in Pakistan,” he said.
The petroleum ministry is exploring different options for LNG import to achieve a competitive price. Last month, a Pakistani team visited Qatar, but Doha refused to offer gas at less than $18 per million British thermal units (mmbtu).
“The ministry also tabled a summary on an integrated LNG import project in a meeting of the Economic Coordination Committee (ECC) on Thursday, but the matter was deferred to next meeting,” the official said, adding this was also one of the options to buy gas at a competitive price.
Earlier, the government had allocated pipeline capacity to private LNG importers for supply of 1.4 billion cubic feet per day of gas, but they also quoted the price of $18 per mmbtu.
Earlier, the government had allocated pipeline capacity to private LNG importers for supply of 1.4 billion cubic feet per day of gas, but they also quoted the price of $18 per mmbtu.
Pakistan and Qatar have already signed a memorandum of understanding for the import of LNG on government-to-government basis. According to the agreement, Pakistan will import 500 million cubic feet per day (mmcfd) of gas, which will be utilised to generate 2,500 megawatts of electricity.
The government will also inject LNG into the pipeline network of Sui Northern Gas Pipelines and Sui Southern Gas Company and charge a weighted average price of gas. This may lead to a hefty increase in domestic gas prices to $9 per mmbtu compared to existing $4.5 per mmbtu, which will affect all categories of consumers.
“Many power producers are using furnace oil, which costs a price equal to $20 per mmbtu and LNG import at $18 per unit is still affordable for the companies using furnace oil,” the official insisted
Here's a Nation newspaper report on US AID chief Shah's visit to Pakistan:
Since the passage of the Kerry-Lugar-Berman legislation in October 2009, the US government has disbursed more than $2.6 billion in civilian assistance, including approximately $830 million in emergency humanitarian assistance. The US civilian assistance funds are spent in five priority sectors: energy, economic growth including agriculture, stabilisation of the border regions, education, and health.
Notably, the people of the United States supported the construction of 210 kilometres of road in FATA and Khyber Pakhtunkhwa, provided clean drinking water to half of the population of the FATA, funded the world’s largest Fulbright exchange program, and sponsored initiatives promoting private sector growth and civil society development in Pakistan.
The Administrator communicated the United States government’s continued desire to engage with Pakistan, focusing on areas of mutual interest and working through issues with trust, respect, and clarity of purpose.
In his meeting with Finance Minister Dr Abdul Hafeez Sheikh, he discussed the important role economic assistance brings to the bilateral relationship, and how US civilian assistance can create jobs and raise incomes for more Pakistanis. He said that United States has disbursed more than $2.6 billion in assistance to Pakistan since October 2009. Much of this assistance has focused on building Pakistan’s energy sector and increasing economic opportunity for Pakistanis. In the energy sector, the United States has collaborated with the Pakistani government to fund work on the Tarbela Dam and other major energy projects which have expanded Pakistan’s electricity-generation capacity by over 400 megawatts, bringing electricity to over six million Pakistanis. By the end of 2013, US assistance will have added another 900 megawatts to the national grid, providing electricity to over 14 million Pakistanis. On economic growth, the United States has trained nearly 70,000 women entrepreneurs in basic finance.
Shah also emphasised that despite challenges the broader bilateral relationship has faced, civilian assistance has remained steady and USAID looks forward to continuing to work together to support mutual objectives in the future.
For more than six decades, the US Government has helped Pakistan develop its economy by supporting the development of its water, power, transportation, and communications infrastructure and by facilitating the establishment of Pakistan’s university system. U.S.-supported universities include IBA, LUMS, Jinnah Post-Graduate Medical Center, and many others.
In the 1960s and 1970s, the United States facilitated the Green Revolution in Pakistan, enabling the country to meet its people’s food needs. The United States also funded construction of several major power plants and dams, such as Tarbela and Mangla.
Unites States-sponsored health programs also helped eradicate malaria in the country. To this day, the United States continues to support Pakistan with extensive programs in the education, health care, economic growth, stabilisation, and energy sectors. Guests of the inauguration ceremony included representatives of the Government of Pakistan, the Parliament, civil society, implementing partners, and the media.
Meanwhile, Dr Rajiv Shah, Administrator for the United States Agency for International Development (USAID), concluded a two-day visit to Pakistan Friday during which he expressed the strong US commitment to building and improving ties with Pakistan through civilian assistance and development support.
Here's an ET story on TAPI gas pipeline:
The government has approved a draft of gas sale purchase agreement for the US-backed Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline and also endorsed the gas price at 70% of crude price, which is cheaper than the gas to be purchased from Iran.
The approval was given here on Thursday in a meeting of the Economic Coordination Committee (ECC) of the cabinet, headed by Finance Minister Dr Abdul Hafeez Shaikh.
The move will pave the way for signing the GSPA agreement by next month. Earlier, the agreement was to be inked on April 19 but it was deferred due to upcoming talks between Afghanistan, Pakistan and India on transit fee.
US is pushing Pakistan to sign the $7.6 billion TAPI gas pipeline agreement, which will provide 3.2 billion cubic feet of gas per day, and has threatened to impose sanctions if it does not abandon the Iran project.
TAPI gas price has been worked out at 70% of Brent crude price, which is 8% cheaper than Iranian gas, according to petroleum ministry documents. Pakistan and Turkmenistan will share risks to the gas pipeline passing through Afghanistan, said the petroleum ministry. The turmoil in Afghanistan is a major risk to the project.
US meddling and expression of 'concerns' is directly proportional to hydrocarbon production of that country.
More gas production will lead to more US meddling and more instability.
What is more gas is going to be much much pricier in the future than today so it is better that Pakistan comes out of this crisis the hard way ie via restructuring its economy and overhauling its education that will give it sustainable competitive advantage rather than a quick fix brought out by increased gas production.
South asians only reform when faced with a looming crisis.India's reforms were done in 1991 in the backdrop of BoP crisis and the collapse of USSR its principal ally.
I think 2012 should be Pakistan's year of reckoning
Anon: "More gas production will lead to more US meddling and more instability."
Not necessarily. Unlike the oil-rich OPEC nations with small populations, Pakistan has a huge population of its own with its domestic energy needs, not for exports of energy.
Besides, the shale gas revolution is already changing the geo-politics.
From now on, the US is more likely to meddle to keep perceived rising powers like India and China in check, as has already been hinted in some of Def sec Leon Panetta's speeches.
From now on, the US is more likely to meddle to keep perceived rising powers like India and China in check, as has already been hinted in some of Def sec Leon Panetta's speeches.
India is part of anti china bandwagon incase u haven't noticed.Pakistan being China's principle ally is going to face a lot of problems courtesy US.
US Japan India Australia are gonna probably form an Asian NATO sooner of later.
Here's a Daily Times report on IFI holdings of Pakistani shares:
Foreigners remained aggressive in Pakistan’s oil and gas sector as they continued to own more than 500 million shares ($950 million) in Oil and Gas Development Company (OGDC) and approximately 120 million shares ($250 million) of Pakistan Petroleum Ltd (PPL), which represent 83 percent and 45 percent of free float of OGDC and PPL, respectively. This is primarily due to higher oil prices and decent volumetric growth. Similarly, their shareholding in Pakistan State Oil (PSO) and Pakistan Oilfields (POL) is expected to remain almost the same. Thus out of $2.7 billion worth of stocks that foreigners hold (as of March to December 2011), approximately 50 percent of the foreign shareholding is only concentrated in oil sector, including which OGDC alone contributes 35 percent.
Interestingly, foreigners which own every third Pakistani share of free-float, have been net buyers of $11 million so far in CY2012 primarily due to record inflows in regional markets amid improved risk appetite and better global economic data. Last year due to depressed global markets, foreign participants offloaded their positions in Pakistan liquidating $123 million net in 2011 contrary to net buying of $526 million in 2010. However, thanks to continued interest in Pakistan market, foreigners now hold shares valuing $2.7 billion as of March 30, 2012 (28 percent of free float). Their peak holding was $5.1 billion (27 percent of free float) in April 2008 and lowest was $1 billion (17 percent of free float) in March 2009.
Estimated holdings of foreigners in Pakistan key stocks are OGDC $950 million, MCB $250 million, PPL $250 million, UBL $135 million, Lucky Cement $135 million, FFC $125 million, Unilever $100 million, POL $75 million, Hubco $65 million, NBP $50 million, Engro $35 million, Nestle $35 million, PSO $25 million and DGK Cement $20 million.
Anon: "US Japan India Australia are gonna probably form an Asian NATO sooner of later."
Don't be sure. The US will use its power to clip the wings of any nation that has ambitions of becoming a superpower, including superpoor India.
US Defense secretary sees China and India threats to US power in Asia Pacific, according to a Reuters' report:
Defense Secretary Leon Panetta appeared to call China and India "threats" on Thursday, in comments that the Pentagon quickly sought to correct.
Panetta, addressing workers at a submarine plant in Connecticut, was talking about emerging challenges facing the United States as it looks beyond the Iraq and Afghan wars.
After detailing the threat of cyber warfare, Panetta turned to concerns over "rising powers."
"We face the threats from rising powers, China, India, others that we have to always be aware of," Panetta said.
"And (we have to) try to make sure that we always have sufficient force protection out there in the Pacific to make sure they know we're never going anywhere."
His remarks came the same day that President Barack Obama said on a visit to Australia that the U.S. military would expand its role in the Asia-Pacific region despite budget cuts. Obama declared America was "here to stay" as a Pacific power.
Pentagon spokesman Captain John Kirby moved to correct the record, saying Panetta believed that relationships with both China and India were absolutely vital.
"Any suggestion that he was implying either country was a military threat is just false," Kirby said.
Kirby said Panetta was referring instead to the challenges that China and India face "within themselves."
"And (he was referring to) the challenges that we share with them as we try to forge better relationships going forward in a very turbulent, dynamic security environment," Kirby said.
Panetta made the comments after touring a nuclear-powered, Virginia-class attack submarine in the very final phase of construction. The U.S. submarine fleet is considered one of the most important counters to China's growing military might, which includes advances in missile technology that make surface targets easier to reach.
Obama also announced this week that the United States will extend the military's reach into Southeast Asia with Marines, naval ships and aircraft deployed to northern Australia from 2012.
China has questioned the deployment to Australia, raising doubts whether strengthening such alliances will help the region pull together at a time of economic gloom.
Here's an ET report on Pakistan getting WB financing for energy and irrigation projects:
Pakistan and World Bank on Thursday signed five pacts for loans of $1.13 billion for improving power supply and agricultural productivity and revitalising community services in strife-torn areas of the country.
Out of $1.13 billion, $35 million will be provided as a grant under the Multi-Donor Trust Fund, administered by WB and established for restoring livelihood and rebuilding infrastructure in the troubled areas.
Economic Affairs Division (EAD) Secretary Dr Waqar Masood and WB Country Director Rachid Benmessaoud signed the agreements.
The bank has given $840 million for extension of Tarbela IV hydropower project that will produce an additional 1,400 megawatts of electricity.
According to EAD, the project will contribute about 4,000 gigawatts of low-cost non-carbon renewable energy annually. Average cost of electricity generated through the project will be 2.49 cents per unit and the project will lay the foundation for a 5th extension of Tarbela.
WB will also provide $250 million for the Punjab Irrigated Agriculture Improvement project. A high-efficiency irrigation system using drips, bubblers and sprinklers will be put in place over an area of about 120,000 acres under the project.
Italy’s soft loan for citizens programme
Pakistan and Italy also signed an agreement for a soft loan of 57.8 million euros for the Citizens Damage Compensation Programme.
The agreement was signed by EAD Secretary Waqar Masood and Italian Ambassador Vincenzo Prati. WB Country Director Rachid Benmessaoud was also present.
The soft loan has been extended at zero interest rate with a repayment period of 40 years including grace period of 31 years. Masood said the assistance would go a long way in alleviating the miseries of flood victims.
Being an shareholder Vanguard Energy, the focus of many oil and gas companies is Canada, South America, Europe and Africa. I believe just like the Middle East, Pakistan is considered too volatile to make long term investing feasible. In fact, Pakistan is considered even more volatile.
China will develop it's own plan with some help from Big Oil Cos whereas India has not opened itself to full exploration yet.
The biggest worry for these companies aside from security is someday being taken over by an undemocratic ruler or military (read Venezuela) in the name of "nationalization".
There is a possibility that funds may start coming in but it seems unlikely in the short term(10 years). If long term stability does come to Pakistan and its government stays free from any Military meddling things may change.
Parikh::"The biggest worry for these companies aside from security is someday being taken over by an undemocratic ruler or military (read Venezuela) in the name of "nationalization"."
Pakistan has many foreign oil and gas companies and it has not nationalized any in the last 65 years.
Besides, there's a 3X better ROI with Pakistan offering $6 per mmBTU vs the current price of just $2 per mmBTU in US.
Right now, Pakistan is distracted by trying to build IP and TAPI pipelines to import expensive gas.
What Pakistan needs to do is have greater focus on shale and make a better pitch to bring in US companies specializing in shale gas development.
"Pakistan has many foreign oil and gas companies and it has not nationalized any in the last 65 years."
Giving yourself a self-promotional title of ' South Asia Investment expert ', the above statement is false and misleading .
1972 On January 2, 1972, Zulfiqar Ali Bhutto, after the fall of East Pakistan, announced the nationalisation of all major industries, including iron and steel, heavy engineering, heavy electricals, petrochemicals, cement and public utilities except textiles industry and lands.
Singh: "1972 On January 2, 1972, Zulfiqar Ali Bhutto, after the fall of East Pakistan, announced the nationalisation of all major industries"
ZA Bhutto did NOT nationalize any foreign oil and gas companies. I stand by my statement.
Esso Eastern in 1974 was taken over by the Government of Pakistan and amalgamated into PSO. Esso eastern is the non US European parent of ExxonMobil today.
Riaz, please recheck.
Singh: "Esso Eastern in 1974 was taken over by the Government of Pakistan and amalgamated into PSO"
Yes, I stand corrected.
Esso had a small marketing and retail operation. Others, including BP, Shell and Caltex were untouched and still operate there.
If Pakistan can end its obsessive hatred of India and think positively on issues like these, Pakistan definitely stands a chance.
I am happy India has decided to overcome its own nervousness about China and India-China trade increases furiously every day. Bilateral trade is already $60 billion and hopefully it will reach $100 billion before 2015.
Pakistan needs to take a leaf out of Indias book and overcome its jihadist tendencies. It is well known that the Pakistani establishment is riddled to the core with terrorist operatives, democratic institutions extremely weak. In this environment, the potential of Pakistani business is wasted and Pakistan has made a terrible name for itself. Worse, it has created a climate of denial in Pakistan and even the capture of Osama bin Laden outside a Pakistani Army cantonment did not convince the people that the military in Pakistan is pro-terrorist, anti-democracy and anti-human.
Pakistan needs to pull out of this malaise and focus on trade. The obsession with Islam and Arabs needs to end. The Arabs are the backwater of civilization today and no Islamic revival will come from this. If you close your Koran and trade confidently and honestly with the West and the BRICS and everyone else, it will be better for Pakistan.
And we Indians would welcome a Pakistan that does not support terrorism, hatch self-destructive plots and is a business partner.
Here's a GeoTV report on Pak-China cooperation on energy and other projects in Pakistan:
ISLAMABAD: Pakistan's Ambassador to China Masood Khan Sunday said Pakistan and China would execute 36 projects worth $14 billion during next five years under bilateral Five Year Development Programme for Trade and Economic Cooperation.
Addressing the inauguration ceremony of Pak-China Business Forum, he said the first five year programme has been completed and the second is about to start this year that would be run by a ministerial level Joint Economic Commission and Economic Cooperation Group.
The four-day event was held here by COMSATS Institute of Information Technology in collaboration with Xuzhou Normal University China.
He said the Joint Energy Working Group, established last year, will oversee development and implementation of hydro, thermal, geo-thermal, coal-fired, solar, wind, biomass, and civil nuclear power projects.
The ambassador said the CIIT was the pioneer institution in Pakistan creating an interface between academia, businesses and government to promote Pakistan-China economic relations.
For a better understanding among people from both countries, the ambassador suggested establishment of Pakistan-China centers in all key Pakistani universities.
"Some have already moved in that direction. In China, Pakistan Study Centers are housed in four prestigious universities including Peking, Tsinghua, Sichuan, and Fudan," Masood Khan said.
He said there is a strong aspiration between both the countries for exchange of youth as hundreds of young students and professionals were exchanging visits "but the figure should move into thousands and then into millions."
"Establishment of a Pakistan-China Young Entrepreneurs Forum will be a good initiative in this context," he suggested.
The ambassador said Pakistan's business ties with China would be as robust as strategic partnership.
But, he said the relationship of two countries will continue to flourish with full vigour if we ensure fusion of all the three pillars of our relations - strategic, economic and people to people exchanges.
He said platforms like Pak-China Business Forums prove to be beneficial for the businessmen who seek guidance as how to do business with China and vise-versa.
He said Pakistan provides the best protection for Chinese workers and businesses and the country would not lower its guard.
"In five years time, we will see a different world. Pakistani nation will overcome its current difficulties, realize its full economic potential and emerge as a regional business hub," he hoped.
Khan stressed for collaboration between academia and industry as the universities provide the best nursery to the industrial sector.
He said with the passage of time, the leading entities have developed common platforms to enhance linkage with each other.
"But we should try to look even better. Here comes the role of educational institutes to help exploit maximum possible potential between the two countries," said Pakistan's ambassador to China.
The ambassador said Shanghai Cooperation Organization was fostering connectivity among the East, Central and South Asian neighborhoods and Pakistan, being an observer, hopes to be its member soon.
He said last year, the Industrial and Commercial Bank of China has opened branches in Islamabad and Karachi.
Moreover, in December 2011, the central banks of China and Pakistan have reached an agreement for currency swap to enable traders of Pakistan and China to use Pakistani Rupee and Chinese Renminbi for transactions and settlements.
"Both these steps would stimulate further growth in Pak-China trade ties," Masood Khan added.
Here are some excerpts of a News interview with Pak industrialist Mian Mansha:
Q: Do you think the decisions taken at recent energy summit would resolve the power and gas crisis? Is it the most burning issue impacting Pakistan’s productivity?
Mansha: Short-term decisions are no solution to a problem that requires long term planning. The government could save a trillion rupees if the power plants using furnace oil were run on coal.
In fact about a year back I proposed to the government to allow me to convert Nishat group furnace oil power plants to coal. The investment plan and revenue sharing formula to cover the cost was also outlined. I regret that things have not moved painfully slow on this proposal of vital national importance. Converting these plants to coal would wipe out entire circular debt in a year and generate resources for alternate energy and hydroelectric projects.
Q: How do you propose to reform the power sector?
Mansha: The deteriorating fuel mix is increasing the base cost. We are producing over 50 percent of power using the most expensive furnace oil as fuel. The losses and theft in electricity distribution are alarmingly high at 35 percent. The public sector power projects are operating a very low efficiency. Sensible solution to the crisis is to privatise and deregulate this sector.
The power distribution companies should emulate KESC that ensures most productive use of electricity by exempting industries from load shedding.
Q: You are pioneer in alternative energy projects, are they feasible?
Mansha: We have been seeking cheaper energy solution. Our cement plant first shifted to coal from furnace oil and then to biomass and municipal solid waste that were even cheaper alternatives.
Pakistan is blessed with large quantity of biomass that has a potential to produce 6000 MW of electricity. Our companies are using corncob, rice husk, wheat straw, cotton plant sticks and other agriculture residue, solid municipal waste, slippers, sandals, and used tyres to generate energy.
There are reports that Saudi Arabia is asking Pakistan to reconsider its decision to proceed with Iran-Pak gas pipeline deal.
I think this is an opportunity for Pakistan to try and negotiate to get Saudi investment dollars and American specialized expertise for developing its domestic shale reserves on an accelerated schedule to ensure cheap and abundant energy for decades to come.
The News reported that the federal government, in a major policy shift has allowed the private sector to establish gas distribution companies a move that would end decades old monopoly of the state run Sui Northern Gas Pipelines Limited and Sui Southern Gas Company.
Senior officials at the ministry of petroleum and natural resources said that the government has already approved a mechanism for supply of gas to the private sector companies. Under the mechanism, exploration and production companies from their new discoveries would be able to allocate 10% gas supply quota to the new private sector entrants under mutually agreed terms and conditions.
Officials said that three companies have already applied for obtaining licences under the new arrangement. However these companies would have to fulfil the criteria as prescribed in the Oil & Gas Regulatory Authority ordinance. Moreover, private gas distribution firms would be allowed to use the distribution network of SNGPL and SSGC under the third party access rules. Under the new mechanism these new firms would also be allowed to purchase liquefied natural gas and distribute it to consumers for ensuring uninterrupted gas supply to consumers.
The ministry officials said that the move is aimed at creating a competitive atmosphere in the gas distribution business resulting in better services to the consumers. The federal minister for petroleum and natural resources held an important meeting on April 10th 2012 in which a decision was taken to permit the private sector to set up gas distribution companies to further improve gas distribution services for customers apart from ending the monopoly of state run gas utilities.
According to senior officials, OGRA had given licences to both the state owned gas utilities under which they had exclusive distribution rights while the private sector was banned till June 30th 2010. But under the new proposal, private sector companies that fulfil terms and conditions of the OGRA have been asked to apply for licences. These companies will be responsible for arranging the gas supply and build customer base on their own.
Here's a Nation report on Pak young scientists in Beijing:
BEIJING - A group of young scientists from Pakistan is arriving here Monday to take part in the first-ever China-Pakistan Young Scientists Forum, focused on energy.
Prominent among them who will address the opening ceremony are leaders of the China People’s Association for Friendship with Foreign Countries (CPAFFC), the China Association for Science and Technology (CAST), and the diplomats from Pakistan Embassy.
The Forum will be kicked off on Tuesday morning with the opening address from Mr. Xu Yanhao, Secretary of the Party Committee of CAST. It will be followed by speech from Zahoor Ahmed, Minister/Deputy Chief of Mission of Pakistan Embassy.
At the first Academic Presentations Dr. Zawar Hussain Shah, assistant instructor, National University of Science and Technology of Pakistan address on “Wireless network of computer”, while Professor Zhang, Beijing University of Posts and Telecommunications on Internet of Things and Liu Chongru, North China Electric Power University on ‘New Energy’.
The second academic presentation session papers will be read by Dr. Zahid Anwar, assistant instructor, National University of Science and Technology of Pakistan on Security in Smart Grids, Abdul Hadi, senior researcher, National Electricity Institute on Computer Engineering.
Huang Xiaohong, Beijing University of Posts and Telecommunications Network Security;Ghulam Ali, academic researcher of University of Information Technology on Solar Cell and Smart Grids, Lu Qiang, North China Electric Power University on Biomass Power Generation.
In the evening there will be presentation by representatives of Pakistani students in China.
The visitors will also be taken to Power University and the Beijing University of Posts and Telecommunications. The young scientists delegating will leave for Pakistan on April 20.
Here's a Business Recorder report on Pakistan to renegotiating Iran gas price:
Pakistan will renegotiate gas price with Iran under the (IP) gas pipeline project as the price of Turkmenistan-Afghanistan-Pakistan-India (Tapi) gas is cheaper, sources close to Petroleum Secretary told Business Recorder.
This was disclosed at a meeting of Economic Co-ordination Committee (ECC) of the Cabinet held on April 12, 2012 under the chairmanship of Finance Minister Dr Abdul Hafeez Shaikh.
The IP gas price was $11 per mmcfd while Tapi was estimated at $13 per mmcfd.
However, a week ago in a meeting in the Ministry of Petroleum and Natural Resources it was revealed that Turkmenistan has agreed to reduce the price from 55 percent price parity with international crude price to 45 percent.
In addition, Pakistan would also earn a transit fee from Tapi while India is not party to IP anymore.
Official documents available with Business Recorder reveal that the ECC was informed that matter for signing of Gas Sales Purchase Agreement (GSPA) with regard to TAPI gas pipeline project, during the visit of the Turkmen President on 14th November 2011, was placed before the ECC in its meeting held on 11th November 2011.
However, the ECC decided that, instead of signing GSPA at this stage, a single-page document containing the intention of both the governments of Pakistan and Turkmenistan, may be signed during the visit of the Turkmen President and the draft GSPA be annexed to that one-page document, for subject approval of the government.
The ECC also constituted a committee for drafting the proposed one-page document.
The committee prepared the requisite one-page document (Joint Declaration), which was accordingly signed by both sides on 14th November 2011.
Subsequently, the matter of TAPI GSPA including gas price formula, agreed base price, risk sharing mechanism with regard to transportation cost, transit fee and gas price review mechanism was considered by the ECC in its meeting held on 20th January, 2012.
The ECC constituted a committee headed by the Minister for Water and Power to examine the details concerning price and pricing formula for gas to be imported from Turkmenistan and submit its recommendation to the ECC.
Qamar-led committee in its meeting held on 6th April, 2012 examined the gas price formula, agreed based price, risk sharing mechanism with regard to transportation cost, transit fee and gas price review mechanism and recommended it for approval of the ECC.
Based upon the foregoing, the ECC was requested to approve the draft GSPA for execution by Inter State Gas Systems (Pvt) Ltd with Turkmenistan (Turkmengaz) including gas price formula, agreed to, risk sharing mechanism and gas price review mechanism.
During the ensuing discussion, it was explained that gas to be imported from Turkmenistan will be cheaper than the gas to be imported from Iran.
Resultantly, Pakistan will be able to re-negotiate the gas price with Iran.
On a query, the ECC was informed that penalty clauses in TAPI GSPA are similar to those contained in Iran-Pakistan GSPA, where-under Pakistan will be liable for payment towards cost of gas even if no gas is imported.
These conditions will be effective after construction of pipeline.....
Here's ET report on IP and TAPI pipelines:
The Economic Coordination Committee (ECC) scheduled to meet today (Thursday) is likely to allow the petroleum ministry to sign Gas Sales Purchase Agreement (GSPA) with Turkmenistan to materialise the $7.6 billion Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project.
Pakistan and Turkmenistan were scheduled to sign the GSPA agreement on April 17 but postponed it due to negotiations between India, Afghanistan and Pakistan on transit fee here in Islamabad next week, a government official told The Express Tribune.
Official said that Pakistan and Turkmenistan had finalised to keep gas price at 70% of crude oil price, much lower than the 78% parity agreed with Iran in the Iran-Pakistan gas pipeline.
“The two countries have agreed to review gas price after every five years,” official said adding that now GSPA is expected to be signed on May 20 in Turkmenistan. Earlier, Pakistan wanted to review gas price after three years keeping in view the trend in oil prices while Turkmenistan wanted it to be fixed for ten years.
The three countries will hold two-day talks from Monday in Islamabad to discuss the fees for transmission of gas from Turkmenistan through Afghanistan and Pakistan to India. In discussions already held on transit fees, Afghanistan opted for Pakistan to pay the fee in the form of gas but Pakistan opposed and proposed to pay it in cash.
Under the initial TAPI project, Pakistan and India are both scheduled to receive 1.365 billion cubic feet of gas per day (bcfd) and Afghanistan 0.5 bcfd.
However, Afghanistan in a meeting earlier this year with Pakistan informed that it does not want gas supply from the project anymore and only transit fee for use of its territory.
If Afghanistan withdraws, its share will be evenly distributed between Pakistan and India,” official said adding that this issue will also come under discussion during talks scheduled next week.
Afghan and Pakistani officials had discussed three different proposals in first week of February in Islamabad relating transit fee that included fee in cash or kind and fixed fee in dollar term on volume of gas from Turkmenistan. The last option was to link transit fee with per kilometre length of gas pipeline. “These proposals will again be discussed to reach agreement on transit fee,” official added.
Here's a NY Times report on India's fuel shortages hurting electricity generation:
India — India has long struggled to provide enough electricity to light its homes and power its industry around the clock. In recent years, the government and private sector sought to change that by building scores of new power plants.
But that campaign is now running into difficulties because the country cannot get enough fuel — principally coal — to run the plants. Clumsy policies, poor management and environmental concerns have hampered the country’s efforts to dig up fuel fast enough to keep up with its growing need for power.
A complex system of subsidies and price controls has limited investment, particularly in resources like coal and natural gas. It has also created anomalies, like retail electricity prices that are lower than the cost of producing power, which lead to big losses at state-owned utilities. An unsettled debate about how much of its forests India should turn over to mining has also limited coal production.
The power sector’s problems have substantially contributed to a second year of slowing economic growth in India, to an estimated 7 percent this year, from nearly 10 percent in 2010. Businesses report that more frequent blackouts have forced them to lower production and spend significantly more on diesel fuel to run backup generators.
The slowdown is palpable at Sowmya Industries, a small company that makes metal shutters that hold wet concrete in place while it solidifies into columns and beams, a crucial tool for the construction industry.
The company, located outside this city on the southeast coast of India, is struggling with several issues, including a 20 percent increase in the price of raw materials and falling orders.
But Sowmya’s manager, R. Narasimha Murthy, said the lack of reliable power was an even bigger problem. His company loses three hours of power every evening. And all day on Wednesdays and Saturdays — euphemistically called “power holidays” — it receives only enough electricity to turn on the lights but not enough to use its large metal-cutting machines.
A major problem is the anemic production of coal, which provides 55 percent of India’s electricity. Coal production increased just 1 percent last year while power plant capacity jumped 11 percent. Some electricity producers have been importing coal, but that option has become more untenable recently because India’s biggest supplier, Indonesia, has doubled coal prices.
For many businesses, the power shortage has become debilitating.
In the southern state of Tamil Nadu, Srihari Balakrishnan, a textile factory owner, said he goes through 6,300 gallons of diesel fuel on an average day to keep his operation running, spending $3,000 more than he would if power were available around the clock.
“We are not able to use 20 to 30 percent of our capacity,” he said. “We can’t use grid power for two full days of the week. When we have power, we have a six-hour cut,” he added, using an Indian term for blackouts.
Other companies are also stuck. Reliance Power, controlled by the investor Anil Ambani, says it has stopped construction on a large electricity plant nearby because it can no longer afford to buy coal from Indonesia as planned.
Here's Economic Times report on $10 per mmBTU TAPI gas price for India:
Natural gas from Turkmenistan would be delivered to India at an estimated price of about $10 per unit, including $3 as transportation charges and transit fee, in the proposed 1,680-km pipeline via Afghanistan and Pakistan, three persons with direct knowledge of the matter said.
Gas would be purchased at about $7 per unit at Turkmenistan but its cost would rise as it transits across two countries before reaching the Punjab border. It would be cheaper than some long-term LNG contracts, government and industry officials said. Gas-starved India pays a spot price of about $16 a unit for liquefied natural gas. Petronet LNG has recently contracted LNG import from Australia's Gorgon project at $15.8 per unit while Gail's 20-year contract with US' Sabine Pass works out to be around $10 per unit.
Russia has reportedly backed out of funding IP pipeline, reports Express Tribune:
KARACHI: The government is working on an alternative plan to finance the $1.5 billion Iran-Pakistan (IP) gas pipeline as hopes for funding from Russia fade in the face of mounting pressure from the US to stop the project, says a senior government official.
Earlier, a Chinese bank backed out of financing the vital gas supply project which may ease most of the energy shortage in the country.
“In the alternative plan, the government is studying a joint investment formula, according to which the engineering, procurement and construction (EPC) contractors will be invited to provide some funds for the pipeline,” the official said.
In talks held between Pakistani and Russian officials in the first week of April in Moscow, Pakistan asked Russia to either extend a loan or provide finished products and other material relating to the pipeline. Russia agreed to respond to the proposal in two weeks, but no response has been received so far.
After the return of the delegation from Moscow, the government officials had, however, announced that Russia had agreed in principle to give financial and technical assistance for the pipeline.
“A reminder has been sent to Russia in this regard and it is to reply by April 30,” the official said. Petroleum Secretary Ijaz Chaudhry also confirmed that Russia had not yet responded to the proposal.
Pakistan approached Russia after a Chinese bank hinted at its inability to push ahead with financing the project amid increasing US pressure. Russia offered to finance the entire pipeline during a four-day visit of Foreign Minister Hina Rabbani Khar to Moscow in February.
Moscow linked the proposal with the award of contract to its energy giant, Gazprom, without bidding. However, to give its consent the government will have to waive Public Procurement Regulatory Authority (PPRA) rules, designed to ensure transparency in government dealings.
“Funds will be generated through infrastructure gas development cess and EPC contractor will also be asked to extend some financing,” the official said, adding the government would make it part of the tender for EPC contract....
Here's a News story on oil leading Pak imports:
Pakistan has spent 43.5 percent (or $3.815 billion) more dollars during the July-April 2011-12 period on import of petroleum products as during the ten-month period the country imported petroleum products worth $12.58 billion against $8.76 billion in corresponding period last year, according to official data.
During the period petroleum imports were one-third of the country’s total imports of $37.04 billion. Petroleum group was followed by agricultural and other chemical group imports of $5.98 billion showing an increase of 16.77 percent over $5.12 billion last year.
Machinery imports also secured a sizable share in country’s total imports during the period under review and it stood at $4.567 billion against $4.41 billion last year, showing a rise of 3.5 percent.
Pakistan Bureau of Statistics (PBS) bulletin indicates that under the petroleum group, petroleum products import stood at $8.35 billion against $4.92 billion last year, showing an increase of 69.8 percent. Besides, crude petroleum import also showed an increase of 49.9 percent to $4.23 billion during these ten months from $3.85 billion in same period last year.
Under the agricultural and other chemical group, manufactured fertilizers import up by 116.5 percent to $1.082 billion, plastic materials by 1.88 percent to $1.28 billion, while imports of insecticides were down by 9.76 percent to $110.39 million and medicinal products reduced by 3.1 percent to $548.66 million over July-April 2010-11.
In the machinery group, textile machinery import declined by 15.11 percent to $339 million against $399.4 million same period last year. Telecom sector import was up by 22.85 percent to $1.05 billion; power generation machinery import increased by 1.3 percent to $877 million; electrical machinery and apparatus import increased by 0.07 percent to $675.3 million; agriculture machinery by 32.7 percent to $103 million; office machinery by 22.6 percent to $239.8 million; construction and mining machinery by 12.6 percent to $111 million over same period last year. During the period, Pakistan spent $568.75 million which was 29 percent more than last year imports of $441.05 million.
In the transport group, imports reduced by 7.26 percent to $1.67 billion from $1.8 billion last year. However, under the completely built units (CBU) during July-April 2011-12 imports of buses, trucks and other heavy vehicles imports increased by 91.3 percent to $122 million and motor cars 161 percent to $285.4 million.
While, under the completely knocked down/semi knocked down category, imports of buses, trucks and other heavy vehicles imports up by 27.1 percent to $120.47 million, motorcycles 27.1 percent to $74.92 million, however, motor cars imports down by 1.14 percent to $389.78 million over same period last year.
The food import declined by 1.73 percent to $4.23 billion from $4.31 billion in July-April 2010-11. In this group, on palm oil import economy spent $1.89 billion which is 18 more than last year. Tea imports up by 4.76 percent to $301.9 million, while pulses import down by 7 percent to $320.27 million and spices imports down by 5.16 percent to $86.57 million over same period of last year.
In textile group, total import was of $1.98 billion against $2.42 billion depicting 18.26 percent decline over corresponding period of last year.
Under this head, raw cotton imports down by 56.68 percent to $369.4 million, synthetic and artificial silk yarn by 6.36 percent to $434.6 million, while synthetic and artificial silk yarn has up by 13.3 percent to $503.87 million and worn clothing import up by 16 percent to 122.48 million over last year...
The shale gas boom in the US has led to a big drop in its carbon emissions, as power generators switch from coal to cheap gas, reports Financial Times:
According to the International Energy Agency, US energy-related emissions of carbon dioxide, the main greenhouse gas, fell by 450m tonnes over the past five years – the largest drop among all countries surveyed.
Fatih Birol, IEA chief economist, attributed the fall to improvements in fuel efficiency in the transport sector and a “major shift” from coal to gas in the power sector. “This is a success story based on a combination of policy and technology – policy driving greater efficiency and technology making shale gas production viable,” Mr Birol told the Financial Times.
Shale gas has transformed the US energy landscape, with surging production pushing gas prices down to 10-year lows and heralding an industrial renaissance. But it is also the subject of a heated environmental debate, with critics alleging that the production process can pollute groundwater.
Gas is fast becoming the new fuel of choice for the US power sector: in the past 12 months, coal generation has slumped by 19 per cent while gas generation has increased by 38 per cent, according to US Department of Energy figures. A gas-fired plant produces half the CO2 emissions of a coal-fired one.
Overall, however, the IEA said 31.6 gigatonnes of CO2 were released into the atmosphere last year, mainly through the burning of fossil fuels – one gigatonne more than in 2010 and much higher than the average annual increase of 0.6 GT between 2006 and 2010. “The impact of this increase is going to be catastrophic,” said John Sauven, executive director of Greenpeace. “We’ve really got to act now, with a real sense of urgency – which up till now has been completely lacking.”
The increase will make it harder to keep global temperatures from rising more than 2 degrees Celsius above pre-industrial levels – which scientists believe is the threshold for potentially “dangerous climate change”.
Here's an ET story on Iran-Pakistan electricity deal:
Iran has linked the price for export of 1,000 megawatts of electricity with international crude prices and the rate will fluctuate in the range of 7 to 11 cents per unit.
Pakistan and Iran have already signed a memorandum of understanding (MoU) for electricity supply. According to a government official, the two sides have also agreed on the price which will be in the range of 7 to 11 cents per unit.
An official of the Ministry of Water and Power said gas prices in Iran were linked with global oil rates, therefore, it based the power price on crude oil prices in the international market.
According to the price formula, Pakistan will be paying a maximum rate of 11 cents per unit of electricity if crude prices reach $110 per barrel and the price range will be reviewed after five years.
“The electricity price has been capped by the time oil rates do not cross the $145 per barrel mark. However, if crude prices rise above that level, the two countries will be bound to review the electricity rate before the end of five-year period,” the ministry official said.
Under the proposed project, Iran will build a powerhouse in Zahedan province bordering Pakistan to generate electricity for export and has also expressed its willingness to provide $800 to $900 million for the project. A 700km transmission line of 500 kilovolts will also be laid from the Pak-Iran border to Quetta.
Some officials suggest that the government should ask Iran to install the power plant in Pakistan in order to avoid expenditure on laying the distribution and transmission line.
Besides the 1,000MW for which an MoU has been signed, Iran has also offered to export a huge quantity of 10,000MW to Pakistan.
However, the ministry official pointed out that Iran, at present, had no power plants to export such a huge quantity. “So the best way is to press Tehran to establish power plants in Pakistan,” the official said, adding Iran had already shown interest in setting up a 200MW plant in Balochistan near the border.
To push ahead with talks on electricity supply, a four-member delegation of Iran’s Mapna group of companies, headed by Abbas Ali Abadi, held a meeting with Federal Water and Power Minister Chaudhry Ahmed Mukhtar at the ministry on Monday.
The delegation expressed great interest in the power sector and discussed the setting up of plants of 1,000MW capacity immediately. The Iranians were also keen on installing smaller plants of 25MW on the ground as well as on barges to help Pakistan overcome the prevailing power crisis.
Here's an ET story on Pakistan's high-price LNG deal:
The Pakistan Economy Watch (PEW) on Friday said the government is planning to buy Liquefied Natural Gas (LNG) on inflated rates under the garb of resolving energy crisis.
All rules and regulations have been relaxed for the import of 500 million cubic feet of LNG per day under a long-term contract with Qatar, said Abdullah Tariq, SVP of PEW in a statement.
Current price of LNG is hovering around $12.5 per million British thermal units (MMbtu). A 15-year agreement should bring down the cost to $7/MMbtu. However, the government is planning to buy the same for around $15/MMbtu which will cost slightly over $18/MMbtu when transportation cost is included. Pakistan will have to pay some $5 million daily for 15 years while politicians will get some Rs400 billion in kickbacks if the deal to import LNG from Qatar on hefty rates is finalised, Tariq warned.
Secretary Petroleum Muhammad Ejaz Chaudhry has been fired for resisting the deal while efforts are under way to tame Ogra, which has also opposed the deal, he claimed.
Here's an Edmonton Journal report on use of South Asian guar bean in fracking for oil & gas:
Who would have thought that an obscure bean could eat into the profits of some of North America‘s largest oil services companies?
The humble guar bean, grown primarily in India and Pakistan, has shot to instant fame in oil markets as it is a crucial ingredient in fracking fluid mixtures used to blast natural gas and oil out of shale rock.
“Shortages of guar beans, an essential component in the shale gas ‘fracking’ process, have resulted in huge price hikes for the commodity in 2012,” said risk consultancy Maplecroft in a 70-page report. “This has hit the profits of oil and gas companies hard and a search is under way to find supply chain alternatives, such as direct farm contracts and man-made substances.”
In India, the National Commodity and Derivatives Exchange (NCDEX) banned trading of guar future on March 21 after prices rallied nine-fold to a record US$1,680 per 100 kilograms, according to Bloomberg data. But for now shale gas producers remain highly dependent on guar gum from India and Pakistan, which exposes them to significant supply chain risks.
In June, Halliburton Co., the world’s largest provider of fracking service warned that it expects to see lower second-quarter margins due to rising guar costs.
“Everybody’s struggling for guar,” Halliburton Chief Financial Officer Mark McCollum told an investor conference. “We’re aware that there are some of our primary competitors missing jobs because of the unavailability of guar.”
Calgary-based Trican Wells Services also reported on July 4 that its bottomline would be directly hit by the elusive and expensive bean.
“Average guar costs increased sequentially in the second quarter and we were largely unable to pass these costs on to our customers due to the competitive pricing environment,” the company said, explaining its larger-than-expected estimated loss of $24-million to $34-million.
But the inventive oil service companies are already looking for guar substitutes. Trican, for example, is looking to introduce a new hybrid fluid system that will reduce its guar usage.
“We have started to see a reduction in guar prices and we expect guar prices to continue to decrease throughout the remainder of 2012 as a result of the development of hybrid systems and guar substitutes, and the new guar crop that is expected to increase supply later in 2012.”
There may be other good reasons for services companies to move away from the bean.
India and Pakistan dominate global production and processing of guar, with India accounting for an estimated 80% of production and Pakistan a further 15%, but sourcing guar from both countries is beset with a range of risks, notes Maplecroft. Labour violations, corruption, a lack of regulation and environmental risks as factors within these countries that can not only impact the price of guar, but also expose oil and gas companies to legal and reputational risks, as they try to secure stable supplies, said the risk consultancy....
Riaz, I agree with you in the need for Pakistan to tap its vast Shale Gas reserves, but the issue isn't getting technology from the US, its the Pakistani government not creating any regulations or laws for the use of Shale Gas. Companies are ready to tap the Shale Gas, but as always, the government has to first allow it.
Here's a Reuters' story on Italian energy giant exploring oil and gas onshore and offshore in Pakistan:
MILAN: Italy’s Eni has strengthened its hand in Pakistan by agreeing to buy offshore gas acreage as the oil and gas major continues to channel cash into more profitable upstream activity.
In a statement on Thursday Eni said it had signed a deal with Pakistan and state oil company OGDCL to acquire 25 per cent and operatorship of the offshore Indus Block G licence, located in Pakistan’s Indus Basin.
Eni is the leading foreign producer in Pakistan with an equity output of 58,000 barrels of oil equivalent per day (boed).
In September it announced a significant onshore gas discovery in a country which it is counting on as part of its strategy to develop assets and bring them to market rapidly.
Huge cost overruns and delays at Kashagan, the world’s largest oil development, have raised questions about its ability to deliver large-scale projects on budget and on time.
Eni, the world’s No. 7 oil company in terms of production, is selling non-core assets like gas transport group Snam and Portuguese energy group Galp Energia to focus on oil and gas exploration.
The company, which produced 1.7 million boed in 2011, has said it is looking to add more than 1.3 million boed of new production by 2022.
Over the past year, Eni has dispelled some of the scepticism about its profitability and growth potential by clinching a deal with Russia’s Rosneft and scoring exploration successes in Norway and Mozambique.
The 7,500-square-kilometre block in Pakistan is “in ultra deep water of an underexplored and promising area offshore Pakistan”, Eni said.
The consortium managing the block is composed of the two state companies OGDCL and Pakistan Petroleum, Eni and United Energy Pakistan Limited – each holding a 25 per cent stake.
Here's a report on Iran-Pak gas pipeline deal by AEI, a conservative American think tank:
On January 30, Pakistan’s cabinet ratified a $1.5 billion agreement with Iran for the laying of nearly 500 miles of pipeline in Pakistan that would connect the country’s gas infrastructure to Iran’s massive South Pars natural gas fields. The pipeline would potentially add over 750 million cubic feet of gas per day to Pakistan’s grid at a time when the country faces crippling energy shortages with some cities suffering frequent protests against 20 hour-long power outages.
Iran offered cash-strapped Pakistan over $500 million in financing to lay the Pakistani section of the pipeline after several private and sovereign foreign entities backed out of the plan over fears of incurring U.S. ire for participating in the project (and when Pakistan refused to award contracts to some without bidding). The Iranians have offered even more funding if the Pakistanis demonstrate seriousness in going ahead with and completing the project. Pakistan, in return, has offered the contract for the construction of the Pakistani segment of the pipeline to an Iranian company called Tadbir Energy (Iran has already largely completed its section).
Tadbir Energy is an Iranian firm that “isn’t sanctioned by any foreign government,” and in July 2012, it made a bid to take over the failing Petit-Couronne refinery in France. The Iranian firm, however, is a subsidiary of the Headquarters for Implementing the Imam’s Directive (HIID), also known as the Imam Khomeini Foundation, an investment firm linked to Iran’s Office of the Supreme Leader. The European Union sanctioned the president of HIID, Mohammad Mokhber, in 2010 for his involvement in Iranian “nuclear or ballistic missiles activities.” Mokhber is also a member of the Sina Bank board of directors, sanctioned by the European Union for its close ties to the Office of the Supreme Leader.
It will be important to watch whether the conclusion of the pipeline agreement leads to further cracks in the U.S.-Pakistan relationship, especially at a time when the U.S. appears to be looking to Pakistan to help facilitate reconciliation in Afghanistan as the U.S. continues to draw down troops from the country. Former Secretary of State Hillary Clinton warned in March 2012 that “beginning the construction of [the] pipeline, either as an Iranian project or as a joint project, would violate [U.S.] Iran sanctions law.” For a time, it appeared as if Pakistan was sensitive to U.S. concerns over Iran and gave some indications that it may scrap or indefinitely delay the pipeline project due to U.S. objections. Pakistan appears now to have calculated that its short-term energy needs are too great, and the threat of U.S. sanctions not strong enough, for it to forgo the deal.
It will also be important to monitor whether Pakistan’s decision to cut a deal with the Iranians has a significant impact on loosening western sanctions on Iran and what sanctions or other fallout, if any, it may face for spurning U.S. entreaties vis-à-vis Iran and engaging with an Iranian company closely linked to already-sanctioned entities.
Here's a BR report on unconventional oil ad gas policy in Pakistan:
Advisor to Prime Minister on Petroleumand Natural Resources Dr. Asim said that Pakistan offers great potential in the oil and gas sector and the government is doing its part by introducing new policies to meet the rising energy demand .
He was presiding over a seminar organized by the Petroleum Institute of Pakistan (PIP), a representative body of the oil and gas industry, on the topic "Shale Gas Potential in Pakistan" on Saturday.
The purpose of holding this seminar was to create awareness aboutpotential and challenges of shale gas in Pakistan and establish PIP'sprofessional standing in view of assisting the government on dealing with the energy crises in the country.
The forum consisted of 150 distinguished guests from the oil and gas fraternity including government officials, media personnel and students from Karachi's top universities/colleges.
Dr. Asim Hussain said he has been advocating the need to balancecountry's energy mix, which currently is heavily dependent on natural gas.
He stated that the US Energy Information Administration have estimated 51 TCF Shale Gas Reserves in Pakistan, while as estimated reserves for Low BTU Gas are 2 TCF and that of tight gas are 40 TCF.
He added that Shale Gas exploration is high technical and costly, therefore, in order to encourage its exploration, pilot projects are planned.
The Ministry of Petroleum and Natural Resources will facilitate E&P Companies wishing to explore shale gas, by granting special concessions through transparent process and based on merit.
Chairman PIP Asim Murtaza Khan stressed on PIP's role as an effective energy sector advisory body, supporting government and industry in Pakistan todevelop a progressive and sustainable roadmap to meet present and futurechallenges.
He said that PIP is planning to hold series of seminars in nearfuture. The big ticket items that will be discussed and which need theimmediate attention will be the "LPG Outlook in Pakistan", "Fast-trackingimports of LNG", "Refining Vision 2020", "Energy conservation" and"Restructuring of the Pakistan's gas sector".
Here's a PakObserver report on possible US energy assistance for Pakistan:
With Pakistan fast heading to sign transnational pipeline project with Iran, US is most likely to offer a comprehensive but conditional energy assistance package as alternate to the Iranian gas.
According to diplomatic sources, the Obama Administration was contemplating to use a luring carrot this time to make Pakistan deliver in the so-called endgame in Afghanistan, besides refraining from translational gas pipeline from Iran.
Since the American strategists were working on a long-term plan to keep an influence centre in Afghanistan even after announced withdrawal of US/Nato troops from the war-torn country, they need Pakistan as a strategic partner even beyond war on terror. “That is why you hear a lot of talk back in Washington about focussing on Pakistan as a long-term partner rather than just a war ally or a facilitator of the endgame,” the sources pointed out.
The sources were of the view juxtaposition of anti-Iran and anti-drones sentiments in the American society may benefit this time in terms of a comprehensive American energy assistance package. “But this time the governments in Pakistan would have to deliver, if they really need their energy woes to be done away with,” the sources added. Consistent voices against the drones from within and outside Pakistan have perhaps made US Administration to understand that drones were practically appearing to be counter productive to the war on terror entering the decisive phase now, they underlined.
Other than strategic and political conditionality attached to prospective energy assistance package, the government in Pakistan would have to expand tax net, end blindfold government borrowing, and culture of vague subsidies.
When asked to comment on possibilities of a new US energy assistance package, US Embassy spokesperson Rian Harris said such proposals and details are not known at the embassy level in advance.
Asked what US law bars Pakistan or any other nation to indulge in business with Iran as India was also buying oil from the same country, she said, “US policy on Iran has not changed.”
“U.S. policy on Iran is well known. We have made it clear to all our interlocutors around the world that it is in their interests to avoid activities that may be prohibited by UN sanctions or sanctionable under U.S. law,” she went on.
“We recognise that Pakistan has significant energy requirements and US are committed to helping alleviate shortfalls,” Rain adds
She reminded, that is why we have invested in major energy infrastructure projects, such as renovating the Tarbela and Mangla dams, modernising the thermal power plants in Guddu, Jamshoro and Muzaffargarh, and building the Satpara and Gomal Zam dams.
These efforts have already added more than 400 megawatts of power to the national grid, and will add a total of 950MW — enough power for 2 million households — by the end of this year,” she said.
Asked how India was exempted from sanctions and buying oil from Iran, she said, “the National Defence Authorisation Act provides the ability to grant exceptions of 180 days to those countries that demonstrate they are significantly reducing their volumes of crude oil imports from Iran.
In December the Secretary of State granted exemptions to nine economies that demonstrated significant reductions of crude oil imports, including India.
Economies must take continuous steps to earn a renewal of the exemption for another 180 days through continued reductions in their purchases,” she concluded.
^^RH: "Energy security via...."
February 28, 2013
REALITY CHECK SHALE GAS: "Rune Storem (ADB)said a shale gas extraction company may pay the price of water but the relevant question is whether a farmer has the capacity to pay.... He said water requirements for shale gas extraction were very large and one thing which was never done in Pakistan was the value of water that had to be measured now before actually implementing the policy.....He said franking technology was being used in shale gas extraction that consumed tremendous amount of water besides huge requirements of research and development funds."
REALITY CHECK THAR COAL: "On the use of Thar Coal in Jamshoro power plant, Rune said in this case too, economic analysis before making a choice between the Thar Coal and imported coal was missing. “Why fuel should be domestic when it is expensive....The issue was not a choice between imported and domestic coal but between cost effectiveness versus expensive and between environment degradation and cleanliness,” he added. He said to produce equal amount of electricity, the indigenous lignite coal requirements were four times more than the requirement of the imported bitumen, which is very cost effective. He said the reserves of Thar Coal were far away from the Jamshoro power plant, which will also increase cost of transportation due to four-times more requirement in addition to damaging roads. "Timing is an essence as the country is facing a serious energy crisis and decisions should be taken to address the crisis immediately,” he said while highlighting that Thar Coal’s extraction was yet to start.
HWJ: "Rune Storem (ADB)said a shale gas extraction company may pay the price of water but the relevant question is whether a farmer has the capacity to pay.... He said water requirements for shale gas extraction were very large and one thing which was never done in Pakistan was the value of water that had to be measured now before actually implementing the policy.....He said franking technology was being used in shale gas'
You expect this kind of skepticism from Europeans who have failed to take advantage of shale.
The fact is that shale gas extraction uses a lot less water than other forms of energy production and the water can be reused in producing more gas.
Here's a comparison:
One MMBtu, or 1 million British thermal units, a standard measurement for the energy content of fuels, was produced from these energy sources using the following amounts of water:
Deep shale natural gas 0.60-5.80 gallons
Nuclear (uranium ready to use in a power plant) 8-14 gallons
Conventional oil 8-20 gallons
Synfuel-coal gasification 11-26 gallons
Coal (ready to use in a power plant) 13-32 gallons
Oil shale 22-56 gallons
Tar sands/oil sands 27-68 gallons
Fuel ethanol from corn 2,510-29,100 gallons
Biodiesel from soy 14,000-75,000 gallons
Here's a WSJ piece on Iran-Pakistan pipeline:
Pakistani Prime Minister Nawaz Sharif said he would proceed with a plan to build a gas pipeline from Iran, despite objections from the U.S., and said that he plans to use his speech at the United Nations on Friday to hit out against American drone strikes in his country.
In an interview in New York with The Wall Street Journal, Mr. Sharif also spelled out, for the first time, the conditions that Pakistani Taliban would have to accept if his government proceeds with a peace deal with the militant group, demanding that they lay down arms and recognize Pakistan's constitution. At the same time, he voiced fears that continued U.S. drone attacks would wreck his policy to negotiate with the Pakistani Taliban, a group closely linked to al Qaeda.
In the interview Wednesday, Mr. Sharif acknowledged frictions with the U.S. but said he believed that the issues could be overcome. "President Obama was very kind to call me up immediately after my election and express his desire to work with Pakistan. I also want to work with the United States of America," he said.
The White House said Thursday that President Barack Obama and Mr. Sharif will meet Oct. 23 at the White House, part of what officials said was a broader effort to deepen ties.
A White House statement said terrorism and the economy will be among the topics discussed, but didn't mention the controversial pipeline. "The visit will highlight the importance and resilience of the U.S.-Pakistan relationship and provide an opportunity for us to strengthen cooperation on issues of mutual concern, such as energy, trade and economic development, regional stability, and countering violent extremism," the White House said in a statement.
An inadequate supply of gas, used to produce electricity, is one of the main reasons for the crippling shortage of power in Pakistan. Mr. Sharif said Pakistan had a contractual obligation to go ahead with the agreement, or face penalties from Iran of $3 million a day if it is not completed by the end of next year. He said that in Islamabad's legal opinion, the pipeline wouldn't trigger the sanctions.
He said that Pakistan would proceed "unless you give us the gas, or the $3 million a day."
However, Pakistan still needs to find $1.5 billion to build the pipeline, which is already completed on the Iranian side, according to Tehran. Islamabad is also hoping that a change in Washington's stance on Iran after the election of Mr. Rouhani could help Pakistan avoid the sanctions.
"The more the drones, the more the terrorists get multiplied. You kill one man, his sons, his father, his brothers, they become terrorists. So this is something that is not helping at all," said Mr. Sharif.
Washington believes the drones have been highly effective in killing senior al Qaeda commanders, Pakistani Taliban leaders and Afghan insurgents who use Pakistan's tribal areas, which border Afghanistan, as a sanctuary.
In words not used in the offer of talks, Mr. Sharif, in the Journal interview, laid out the terms that would be available to the militants.
"They will have to renounce terrorism," said Mr. Sharif. "They [Pakistani Taliban] will have to abide by the constitution of Pakistan."
"It's been often said by them that they don't recognize the constitution of the country," he said. "But the constitution has to be recognized. If we agree on addressing this terrorism, they will have to be disarmed, lay down their arms."
Here's a News story on US agreeing to help Pakistan with shale gas development:
ISLAMABAD: In a major development the US has agreed to extend the technical help for the exploration of shale gas reserves in Pakistan and to this effect a US company is all set to initiate a study for an exact assessment of oil and gas reserves – particularly the shale gas – available in Pakistan, an official told The News.
The study is to take nine months to be completed, reveals one of the senior officials – who were part of the high level delegation that recently visited the US and held dialogues on energy in Washington and Houston between November 12 and 16.
The delegation – headed by the Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi – comprised of secretaries and heads of public sector entities.
Later, the petroleum ministry signed an agreement with the US consultant Advanced Engineering Associates International, Inc (AEAI) that would embark on the strategic study to assess the actual reserves of shale gas in Pakistan and then with the help of the US experts four methods would be formulated to exploit the shale gas reserves.
The Director General Petroleum Concession Saeed Ullah Shah said the study will be completed in nine months. To a question, he said that the USAID would finance the study.
The EIA (Energy Information Administration) — US federal authority on energy statistics and analysis – in June last said that Pakistan was estimated to have fresh recoverable shale gas reserves of 105 trillion cubic feet (TCF) and more than nine billion barrels of oil.
The official said Pakistan has conventional gas reserves of just 23 TCF and conventional oil reserves of 286 million barrel per day. “We have set the date to AEAI for the exact identification and authentication of shale gas reserves,” he said.
“Shale gas had seen tremendous developments in the United States and a couple of other countries were trying to use the latest energy source. Pakistan was also encouraging exploration and production companies to venture into the field,” said the official. Secretary petroleum and natural resources Abid Saeed said that US officials showed willingness to help Pakistan in coping with energy crisis and extend the technical expertise and training to Pakistan’s officials in shale gas exploitation. USAID has already helped Pakistan in formulating the shale gas policy.
NY Times on why oil prices are falling:
When Morse and Jaffe wrote their article last year, the price of oil was more than $100 a barrel. Today, the per-barrel price is in the low- to mid-$80s. It has dropped more than 25 percent since June. There was a time when $80 a barrel would have been more than satisfactory for OPEC members, but those days are long gone. Venezuela’s budgetary needs requires that it sell its oil at well above $100 a barrel. The Arab Spring prompted a number of important OPEC members — including Saudi Arabia and the United Arab Emirates — to increase budgetary spending to keep their own populations quiescent. According to the International Monetary Fund, the United Arab Emirates needs a price of more than $80 to meet its budgetary obligations. That’s up from less than $25 a barrel in 2008.
Not long ago, Venezuela asked for an emergency OPEC meeting to discuss decreasing production. Iran has said that such a meeting is unnecessary. Meanwhile, Saudi Arabia has made it clear that it is primarily concerned with not losing market share, so it will continue to pump out oil regardless of the needs of other OPEC members. This is not exactly cartel-like behavior. The next OPEC meeting is scheduled for late November, but there is little likelihood of an agreement.
Continue reading the main storyContinue reading the main storyContinue reading the main story
And why does OPEC suddenly find itself in such disarray? Simply put, the supply of oil is greater than the demand, and OPEC has lost its ability to control the supply. Part of the reason is a slowdown in global demand. China’s economy has slowed, and so has its voracious appetite for oil. Japan, meanwhile, is increasingly turning to natural gas and nuclear power.
But an even bigger part of the reason is that the shale revolution in North America is utterly changing the supply-demand dynamic. Since 2008, says Bernard Weinstein, an energy expert at Southern Methodist University, oil production in the United States is up 60 percent. That’s an additional three million barrels a day. Within a few years, predicts Morse, America will overtake Russia and Saudi Arabia and become the world’s largest oil producer.
What’s more, according to another article Morse wrote, this one for Foreign Affairs magazine, “the costs of finding and producing oil and gas in shale and tight rock formations are steadily going down and will drop even more in the years to come.” In other words, the American energy industry might well be able to withstand further price drops easier than OPEC members.
When I got Jaffe on the phone, I asked her if she thought OPEC was a spent force. “You can never say never,” she replied, and then laid out a few dire scenarios — mostly revolving around oil fields being bombed or attacked — that might make supply scarce again. But barring that, this is a moment we’ve long been waiting for. Thanks to the shale revolution, OPEC has become a paper tiger.
#SaudiArabia winning war on shale oil by producing more at lower prices. #shale #USA http://fw.to/W7QRFkl
If you believe all the recent stories about how Saudi Arabia is losing the price war it started against U.S. tight oil producers last year, the new Oil Market Report from the International Energy Agency offers a reality check. The Saudis are winning, though they're paying a heavy price for it.
The narrative about U.S. shale's resilience in the face of the Saudi decision to drive up production, prices be damned, centers on the American industry's ability to cut costs and use innovative technology to repel the brute force onslaught. There is a kind of David versus Goliath charm to this story, but the data don't bear it out. The IEA, the world's most respected independent source of information about the oil market, has changed its methodology for measuring U.S. output: It now polls producers, instead of relying on data from states. And the switch has caused the agency to revise production data for the first half of 2015, showing a noticeable slowdown.
The U.S. is still pumping more than it did last year, but the output is declining.
IEA data show monthly contractions of 90,000 barrels a day in July and almost 200,000 barrels a day in August. Output is dropping for all seven of the biggest U.S. shale plays. The IEA predicts that the U.S. production of light tight oil -- the type pumped by frackers -- will go down by 400,000 barrels a day next year, about as much as Libya currently produces. That drop will account for most of the 500,000 barrels a day drop in production outside the Organization of Petroleum Exporting Countries that the agency predicts for 2016. Production is also dropping in Canada: It's below 4 million barrels a day for the first time in 20 months.
The IEA doesn't believe shale oilers' incantations about drastically lower marginal cost of producing oil from already drilled wells. It points out that tight oil wells dry up much faster than traditional ones: Recent data show that output drops 72 percent within 12 months of startup and 82 percent in the first two years of operation. "To grow or even to sustain production levels requires continuous investment," the IEA report says. Low oil prices reduce frackers' access to the capital they need, and rig counts are falling again -- in early September the drop was the steepest since May.
The number of active rigs has fallen by 40 percent from a year ago. They are far more productive, because they are only being used in the most profitable locations, but that tactic has largely exhausted itself. A steeper production decline cannot be staved off for much longer.
None of this should come as a surprise. If there is one thing the Saudis know about, it's oil. They know all about the new technology used by U.S. shale, too: They work with the same international service companies and attend the same conferences. They did not make a dumb mistake gambling with their only economic advantage. The IEA reported: "On the face of it, the Saudi-led OPEC strategy to defend market share regardless of price appears to be having the intended effect of driving out costly, 'inefficient' production."
The perception that Saudi Arabia is losing the oil war is based on the absence of a spectacular rout in the U.S. -- the shale industry hasn't collapsed, right? -- as well as the Saudis' own fiscal difficulties. The kingdom is certainly running through its foreign currency reserves faster than shale oil output is falling:
So what, price wars are costly. And victory in them doesn't usually mean the complete destruction of the losing side. Rather, the Saudis seek submission.
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