The South Asian nations, Pakistan and Bangladesh are now relying to a great extent on a costly and dirty diesel-powered energy mix as they scramble to procure liquefied natural gas (LNG) cargoes amid global supply disruptions that exacerbated after Russia declared war on Ukraine, reported Bloomberg.
After at least seven years, Pakistan’s diesel-fired power generation surged to record levels in January 2022, whereas the output based on LNG fell to its lowest in almost two years. This is likely to persist as Pakistan is so far unable to locate substitute LNG shipments following the cancellation of long-term supplies from big-name merchants.
The prevalent issue underlines the dangers of relying too much on LNG, which has been in limited supply in recent years due to unsustainable demand and meager supply. This problem has the potential to raise power bills across South Asia, increase government subsidies to maintain power payments, and stymie Pakistan’s and Bangladesh’s economic recovery.
According to January data from the National Electric Power Regulatory Authority (NEPRA), diesel is the most expensive fuel for power generation in Pakistan, costing 14 percent more than fuel oil and 55 percent more than LNG-based generation. Diesel consumption is also increasing as the country’s refineries run out of fuel oil, possibly signaling the emergence of other issues.
It is to recall that the residents of Karachi were compelled to utilize cylinders due to a rising gas shortfall this winter, and the authorities offered discounts to convince people to convert from gas to electricity for warmth. Domestic gas production has dropped by nearly a fifth in the last two years, making LNG imports even more important.
Forecast
Energy prices have risen in the wake of Russia’s invasion of Ukraine and the sanctions imposed on the former. Higher costs are particularly burdensome in the fight against climate change for developing economies like Pakistan and Bangladesh.
Diesel is utilized only when there are limits, and it is primarily for system stability and restoration during blackouts and power failures, according to Pakistan’s energy ministry. It stated that there will be no necessity for diesel fuel for electricity generation till June.
According to Bloomberg’s strategic research provider for global commodity markets coverage — BloombergNEF — liquefied natural gas imports into India, Pakistan, and Bangladesh are expected to reach a low point in February due to exorbitant spot LNG prices. In January, a total of 39 cargoes landed, the lowest number since February 2019.
Research indicates that the share of spot volume in South Asia’s total LNG imports decreased to only 18 percent in January, down from 25 percent observed in December. An analyst told Bloomberg that LNG supply appears to be constrained at the moment, and prices were projected to remain high even before Russia declared war on Ukraine.
“It’s likely Bangladesh and Pakistan will need to continue to use more diesel and oil in power generation,” he estimated.
