Following the Russian invasion of Ukraine, the European Union has imposed sanctions on Russia for this invasion. Russia retaliates by cutting off gas supplies to Europe. Europe, the biggest buyer of Russia’s gas, is now facing a severe energy crisis of the decade. The US assumes that putting sanctions on Russia will adversely affect their economy as Russia exports 40% to Europe. As EU sanctions tighten, Moscow has stepped up fuel exports to Asia. This is done to find alternative markets for new profitable importers of its oil and gas. Now Russia has turned its supply of energy markets towards Asia. While China and India are already buying Russian gas, Pakistan is also in talks with Russia to import LNG.
Pakistan’s LNG shortage
Ahead of winter, the foreign minister has already warned the citizens about the gas shortage. Pakistan doesn’t have long term energy management plan. Although Pakistan ranked 29th among the states with the biggest reserves of natural gas, meanwhile domestic supplies have declined over the past few years. According to Bloomberg Pakistan has a severe energy shortage as the government was unable to secure longstanding supply of liquefied natural gas. Several failed attempts to buy gas from the expensive spot market have led to widespread power cuts this year.
According to traders until 2026, when massive new export projects start up there’s little LNG supply accessible. As consumers in Europe are willing to pay high prices in the rush to secure gas as a substitute for deteriorating Russian pipeline flows. Many spot cargoes are currently going to Europe. This leaves developing nations facing energy shortages and economic uncertainty for years. Pakistan, which is already suffering from high inflation and decreasing currency reserves. Some LNG providers are hesitant to sell fuel to the nation. It is the that they may not be able to make future payments.
Benefits of LNG import to Pakistan
Pakistan heavily relies on imported liquefied natural gas (LNG) as an alternate fuel. In 2020, Pakistan imported 7.4 million tons of LNG. The government assumes that over the next decade LNG demand will grow rapidly. It is estimated that by 2030 Pakistan’s LNG imports could grow to $32 billion. In order to ease a crippling shortage of natural gas Pakistan is considering signing a liquefied natural gas (LNG) purchase agreement with many countries as well as Russia as it seeks to secure supply.
Sui Northern Gas is a gas distributor in Pakistan. In a notice to the stock exchange, it said that it would give 100,000 cylinders to consumers. It was to deal with a potential gas shortfall this winter. The government has requested the business that serves clients in the northern half of the country to take action. The steps include energy requirements as Pakistan is facing challenges in aftermath of devastating floods. The currency has likewise lost value. The government has to look into other energy options to meet the gas requirements.
Agreements between Russia and Pakistan
Russia and Pakistan signed an agreement on the construction of 1,100 km-long pipeline in 2015. In order to fuel power plants in the northeastern state of Punjab, liquefied natural gas (LNG) from Karachi on the Arabian Sea coast had to be imported. The estimated cost of the construction of a gas pipeline from Karachi to Kasur was $3 billion. The pipeline has a 12.4 billion cubic metre (bcm) designed annual capacity, with a potential upgrade to 16 bcm.
In 2017, Pakistan Oil and Gas Development Company Limited (OGDCL) signed a cooperation agreement with Gazprom. Under this agreement, Pakistan and Russia guaranteed to develop hydrocarbon projects in Pakistan.
Then Gazprom and Pakistan struck a second $10 billion agreement in 2018 to carry out a feasibility study. The aim was to build an offshore pipeline starting from Iran to Pakistan. Again in 2019, Russia assured Pakistan of $14 billion investment. The guarantees included the North-South Pipeline Project, offshore gas project, and underground gas storage facilities were the guarantees.
Russian President Vladimir Putin showed his commitment of building gas infrastructure in Pakistan in a meeting with PM Shehbaz Sharif at the Shanghai cooperation organization. Particularly in the energy sector, Russia and Pakistan have other interesting and ambitious projects. Putin also discussed the Pakistani Stream project, which suggests the creation of infrastructure for supplies of liquefied natural gas.
If Pakistan buys Russian gas, it will be a huge benefit. Winter has already come and there is a huge demand for gas. Pakistan’s LNG supplies are not enough to meet the country’s gas requirements. In light of diminishing gas reserves, reinforcing relations with a reliable partner like Russia would be significant to Pakistan’s energy security. At this time, importing Russian gas will definitely ease the pressure on the already crippled economy.