Tuesday, July 30, 2013

Shale Revolution's Impact on Saudi Wealth and Power

The rise of the West was driven by the Industrial Revolution beginning in the 18th century. It has since been fueled by fossil fuels--initially coal and later with oil and gas. Coal was indigenous in Britain and America but it is highly polluting and left much of London and New York with a thick coat of soot on everything in sight. Oil burns relatively cleaner but much of it is in the Middle East, particularly in the Persian Gulf region. First Britain and then United States saw the significance of the region and sought to control its energy resource through dictatorial puppet regimes, many of which still survive with active support of the Western powers.

Recent US EIA report on vast shale oil and gas reserves (over a trillion barrels) in many countries, including Pakistan (9.1 billion barrels of oil and 105 trillion cubic feet of gas), has prompted a warning to Saudi government from Saudi Prince Alwaleed Bin Talal. While the Prince's warning is about economic impact, I see much broader long term implications of it for the US-Saudi alliance and the power and influence of the Saudi royalty in much of the region and the rest of the world.

The top ten countries together have 345 billion barrels of shale oil reserves These include Russia (75 billion barrels), United States (58 billion barrels), China (32 billion barrels), Argentina (27 billion barrels), Libya (26 billion barrels), Venezuela (13 billion barrels), Mexico (13 billion barrels), Pakistan (9.1 billion barrels), Canada (8.8 billion barrels) and Indonesia (7.9 billion barrels). Notable on this list are US and China, the top 2 consumers of  oil in the world, both having vast shale oil reserves of their own.



In an open letter to Saudi Oil Minister Ali al-Naimi and other Saudi ministers, published on Sunday via his Twitter account, Prince Alwaleed said demand for oil from OPEC member states was "in continuous decline". He said Saudi Arabia's heavy dependence on oil was "a truth that has really become a source of worry for many", and that the world's biggest crude oil exporter should implement "swift measures" to diversify its economy, according to news media reports.

Shortly after the Prince issued his warning, a report from OPEC published this week showed the group's oil export revenue hit a record high of $1.26 trillion in 2012. However, forecasts from the group raise doubts over whether that level of earnings can be sustained in the face of competition from shale oil. Saudi Arabia, the world's biggest oil exporter, is now pumping at less than its production capacity because of declining consumer demand, Prince Alwaleed said in the letter.

Saudi dependence on oil stems from the fact that nearly 92% of the Saudi government budget this year comes from oil , according to Wall Street Journal. The growing shale oil production in the United States means Saudi Arabia will not be able to raise its production volume to 15 million barrels of oil per day, Prince Alwaleed said. Current capacity is about 12.5 million bpd; a few years ago the country planned to increase capacity to 15 million bpd, but then put the plan on hold after the global financial crisis in 2008.

Oil-rich Gulf nations like Saudi Arabia, Qatar, UAE and Iran have used their petrodollars to influence events in the Middle East and West Asia. They have funded their favorite sectarian groups to fight bloody proxy conflicts in Lebanon,  Iraq, Pakistan and Syria.  Saudis have bankrolled radical Sunni groups in Pakistan while Iran has financially backed Shia Hezbollah in Lebanon and other radical Shia groups in Iraq and Pakistan.  Qatar, Saudi Arabia and UAE have supported pro-West elements to roll back democracy in Egypt.

Even if Saudis do heed Prince Alwaleed's warning and succeed in diversifying their economy, it is highly unlikely that the desert Kingdom would be able sustain its current power and influence over the long haul. This is going to be bad news for the rulers who will respond with violence to resist change. But it is potentially good news for the Saudi people and the Arab and Muslim world at large. It'll open up opportunities for reforms leading to positive changes in the Middle East and the surrounding region.

Related Links:

Haq's Musings

Pakistan's Vast Shale Oil and Gas Reserves

Saudi vs Turkish Influence in Pakistan

Shale Gas in Pakistan

Power Shift After Industrial Revolution

Pakistan Needs Shale Gas Revolution

Will Saudi Society Change Peacefully?

Pakistan Starts Tight Gas Production

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Saturday, July 27, 2013

Tackling Increasing Power Theft in Pakistan

"Do your fasting, pay zakat (charitable donations) and serve your parents, but do these things by the light of legal electricity." Peshawar Electric Supply Company (PESCO)

Peshawar's electric utility has published full page advertisements in major Peshawar newspapers to appeal to its customers' religiosity in the holy month of Ramadan to stop stealing electricity and pay their bills.

According to news reports, PESCO ads exhort the local power consumers to do the right thing by citing religious edicts as follows: "Clerics have ruled that doing good deeds by the light of stolen electricity is against sharia, so let us stop using stolen electricity and beautify our day of judgement."

A combination of deadbeats and power thieves brazenly flout the law by not paying for electricity they use. Many of them are often politically powerful or connected to political bosses who protect them from the law. Some even shamelessly assert their right to steal electricity and refuse to pay bills. The state-owned power companies' employees are often corrupt and complicit in perpetuating the problem which is hurting the entire country. As a result, Pakistan's power sector and its fuel supply chain have been crippled by years of underinvestment, leaving people to endure blackouts of up to 20 hours a day in scorching summer heat.

The problem is widespread. It may be bigger in Peshawar but it is certainly not limited to any one particular city or province. In Islamabad, the nation's capital, it's fairly common for people living in large luxury homes to bribe corrupt utility officials to cap their monthly bills to just Rs. 1000 ($10) regardless of how much electricity they consume.  It's a key reason for Pakistan's worsening energy crisis. By some estimates, more than 40% of the power generated in Pakistan is not paid for.



It can be argued that the power theft is just one manifestation of the fraying moral fiber that is responsible for much of what is wrong in a country where religious fervor has been on the rise particularly since 1980s. Pakistan has rapidly climbed Transparency International's corruption rankings with more and more Pakistanis wearing religion on their sleeves. Symbols of religiosity like beards and hijabs are far more common in Pakistan now than I ever saw when I was growing up in the country in 1960s and 1970s.  Violence against fellow Muslims has also grown along with increasing religiosity. Huqooq-ul-Ibad have been almost completely ignored as Huqooq-ul-Allah have dominated religious discourse in the country.

KESC (Karachi Electric Supply Corporation), Pakistan's largest city Karachi's privately held utility, has started to reward those who pay and punish those who don't. It's a collective reward and punishment scheme to deal with the problem in Karachi. Areas where there is 80% money recovery see almost zero load shedding, 70% get a couple of hours of power cuts and those with less than 50% endure very long hours of black-outs. This policy has helped KESC reduce power theft from about 40% a few years ago to about 28% now  It has also resulted in about 50% of Karachi being supplied uninterrupted power.

There are many steps the new government can take to reduce power theft and improve revenue collection in the power sector. Here are a few of them:

1. Lead by example. All government ministers, top officials and members of national and provincial legislatures should pay their bills.

2. Implement the KESC's Karachi policy in more cities and towns to show consumers the benefits of paying for electricity by rewarding those who pay and punishing those who don't.

3. Deploy technology such as remotely read automated smart meters (AMR) and pre-paid electric meters (remotely shut-off when accounts run dry) to track consumption accurately and control electricity flow.

4. Appeal to people's deep religiosity to fulfill their obligations of paying for what they use. Encourage mosque leaders such as imams and khatibs to reinforce the message through their daily and weekly sermons.

5. Enforce the law. Cut off power to the delinquent consumers. Use police and paramilitary forces to remove kundas, illegal hooks slung over power lines to steal electricity in broad day light.

There is little hope of fixing the worsening crisis without strong action to improve the finances of the power sector to attract more investment.

Related Links:

Haq's Musings

Blackouts and Bailouts in Energy Rich Pakistan

Remembering Huqooq-ul-Ibad in Ramadan

Culture of Corruption in Pakistan

Circular Debt and Load Shedding in Pakistan

Twin Shortages of Gas and Electricity

Corruption and Incompetence Hobble Pakistan Power Sector

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Thursday, July 18, 2013

Pakistan Hits Major Milestone With Tight Gas Production

First tight gas well  producing 15 million cubic feet per day of natural gas is on line at Sajawal gas field in Kirthar block in Sindh province, according to a report in Express Tribune. This marks a major milestone in development of unconventional hydrocarbon energy sources in Pakistan. Sajawal gas field is located 110 km south east of Karachi, Pakistan. It puts Pakistan in an exclusive club of just a few nations producing unconventional natural gas.


The tight gas well in Kirthar belt is being operated jointly by Poland's Polskie Gornictwo Naftowe i Gazownictwo (PGNiG) and Pakistan Petroleum Limited (PPL).

The state-owned Sui Southern Gas Company (SSGC) is buying gas from the joint venture at $6 per million BTUs (half the price agreed for Iranian gas) for distribution through its network in southern Pakistan. SSGC is laying a 52-kilometre-long pipeline at an estimated cost of Rs 325 million, carrying gas from the Suleman Range to the Nooriabad industrial estate.

First tight gas production launch in Sajawal is a very significant milestone for Pakistan. It augurs well for the future of both tight and gas production in the country because there are similarities in how both are extracted. Pakistan is endowed with huge deposits of both---105 trillion cubic feet (TCF) of shale gas and at least 33 trillion cubic feet of tight gas. In addition, Pakistan is also blessed with 9.1 billion barrels of shale oil which is also extracted in a similar way.




Pakistan's current demand for natural gas is about 1.6 trillion cubic feet per year. Even if consumption triples to 5 trillion cubic feet per year, the current known reserves of over 150 trillion cubic feet of conventional and unconventional gas are sufficient for over 30 years.

Wells for both of these unconventional resources (tight and shale) must be "hydraulically fractured" (fracked)  in order to produce commercial amounts of gas. Operator challenges and objectives to be accomplished during each phase of the Asset Life Cycle (Exploration, Appraisal, Development, Production, and Rejuvenation) of both shale gas and tight gas are similar, according to a paper on this subject.  Drilling, well design, completion methods and hydraulic fracturing are somewhat similar; but formation evaluation, reservoir analysis, and some of the production techniques are quite different.

The current technology known as hydraulic fracturing or fracking was developed in the United States and it has spawned shale oil and gas revolution increasing supplies and reducing gas prices. The Chinese are now working on further cutting costs to make the equipment and technology more affordable.

Like the shale gas revolution in the United States, tight gas is transforming China's gas production - accounting for a third of total output in 2012 -- and will form the backbone of the country's push to expand so-called "unconventional" gas production nearly seven-fold by 2030, according to Reuters. The speed and size of the boom has exceeded forecasts and has been led by local firms developing low-cost technology and techniques, already being rolled out by Chinese companies in similar gas fields outside of China. Pakistan can benefit from the Chinese in its efforts to increase tight and shale gas and oil production.

Related Links:

Haq's Musings

Why Blackouts and Bailouts in Energy-Rich Pakistan?

Pakistani Guar in Demand for American Shale Fracking

US EIA Estimates 9.1 Billion Barrels of  Shale Oil in Pakistan

Pakistan's Vast Shale Gas Reserves

Abundant, Cheap Coal Electricity

Twin Energy Shortages of Gas and Electricity in Pakistan

Pakistan Energy Security Via Shale Revolution

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Thursday, July 11, 2013

Energy-Rich Pakistan Can End IMF Bailouts and Power Blackouts

Frequent IMF bailouts and power blackouts in energy-rich Pakistan are closely tied. One of the key reasons for recurring balance-of-payment crises is the country's rapidly rising oil import bill. The lack of sufficient fuel exacerbates load shedding, negatively impacts economy, reduces tax revenue growth and worsens current account and budget deficits. This requires repeated injections of IMF loans in US dollars to meet import requirements and deal with budget shortfalls.

Pakistan Energy Infrastructure (Source: PPEPCA)


Pakistan's Untapped Energy Riches:

1. Shale Oil:

A recent US EIA report released in June 2013 estimates Pakistan's total shale oil  reserves at 227 billion barrels of which 9.1 billion barrels are technically recoverable with today's technology. In fact, US EIA (Energy Information Administration) puts Pakistan among the top ten countries by recoverable shale oil reserves. These include Russia (75 billion barrels), United States (58 billion barrels), China (32 billion barrels), Argentina (27 billion barrels), Libya (26 billion barrels), Venezuela (13 billion barrels), Mexico (13 billion barrels), Pakistan (9.1 billion barrels), Canada (8.8 billion barrels) and Indonesia (7.9 billion barrels).

2. Shale Gas:

The latest US EIA report has raised estimates of Pakistan's recoverable shale gas reserves from 51 trillion cubic feet to 105 trillion cubic feet. It says Pakistan has 586 trillion cubic feet of shale gas of which 105 trillion cubic feet (up from 51 trillion cubic feet reported in 2011) is technically recoverable with current technology.

3. Tight Gas:

Rough estimates indicate the presence of at least 33 trillion cubic feet of unconventional gas reserves trapped in tight sands, according to an ENI Pakistan report. Another report by Shahab Alam, technical director of Pakistan Petroleum Concessions, puts the estimate at 40 trillion cubic feet of tight gas reserves in the country. These unconventional gas reserves are in addition to the remaining conventional proven gas reserves of over 30 trillion cubic feet.

4. Conventional Gas:

In addition to unconventional oil and gas resources, Pakistan also has about 30 trillion cubic feet of remaining conventional natural gas.

5. Thar Coal:

Pakistan's coal reserves in the Thar desert are estimated at 175 billion tons, according to  Geological Survey of Pakistan. It's low BTU content coal.  The carbon content of Thar lignite is around 60-80%; the rest is composed of water, air, hydrogen, and sulfur. It's hard to transport it but it can used to generate electricity in an integrated mining-generation facility.

6. Hydro:

Pakistan's hydroelectric potential is over 100,000 MW of electricity of which 59,000 MW can come from currently identified sites by the nation's Water and Power Development Authority (WAPDA).

7. Wind:

According to data published by Miriam Katz of Environmental Peace Review, Pakistan is fortunate to have something many other countries do not, which are high wind speeds near major centers. Near Islamabad, the wind speed is anywhere from 6.2 to 7.4 meters per second (between 13.8 and 16.5 miles per hour). Near Karachi, the range is between 6.2 and 6.9 (between 13.8 and 15.4 miles per hour). In only the Balochistan and Sindh provinces, sufficient wind exists to power every coastal village in the country. There also exists a corridor between Gharo and Keti Bandar that alone could produce between 40,000 and 50,000 megawatts of electricity, says Ms. Katz who has studied and written about alternative energy potential in South Asia.

8. Solar:

Pakistan is an exceptionally sunny country. If 0.25% of Balochistan was covered with solar panels with an efficiency of 20%, enough electricity would be generated to cover all of Pakistani demand. Solar energy makes much sense for Pakistan for several reasons: firstly, very large population lives in 50,000 villages that are very far away from the national grid, according to a report by the Solar Energy Research Center (SERC). Connecting these villages to the national grid would be very costly, thus giving each house a solar panel would be cost efficient and would empower people both economically and socially.

Summary:

Pakistan's frequent bailouts and blackouts are clearly related. The key to solving these interlinked crises is to put high priority on developing the country's vast but untapped domestic energy resources identified above. These include shale oil, shale gas, tight gas, Thar coal, hydro and renewables like solar and wind. Reducing Pakistan's dependence on energy imports is also the key to making the nation less vulnerable to recurring external shocks from energy prices which vary wildly with international political and economic events and crises.

Related Links:

Haq's Musings

US EIA Estimates Pakistan's Shale Oil Reserves at 9.1 Billion Barrels

Pakistan's Vast Shale Gas Reserves

Pakistan's Energy History

Cheap Coal Electricity

Potential Renewable Energy Resources in Pakistan

Hydroelectricity Potential in Pakistan

US EIA Shale Oil and Gas Report 2013


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