New Delhi, May 23: According to a recent article, Pakistan’s gas sector is experiencing a structural decline. This downturn is harming industrial competitiveness and leading to a decrease in exploration investments. Additionally, the country’s reliance on LNG is increasing, which is undermining Pakistan’s long-term energy security.
The article from Karachi’s Business Recorder highlights that policymakers view the gas crisis as a supply shortage issue. However, the real problem is much deeper. The current structure of the gas market is failing to operate effectively.
Pakistan is grappling with declining domestic gas production, expensive RLNG imports, reduced industrial flow capacity, and severe financial stress across the entire energy supply chain. Despite these challenges, there have been minimal changes in the institutional structure. The most alarming consequence is the reduction in flow capacity.
Industrial consumers are increasingly reducing their dependence on pipeline gas due to unaffordable and unpredictable tariffs. Businesses are shifting towards solar, coal, biomass, furnace oil, and self-generation, as pipeline gas is no longer considered commercially reliable.
The article points out that poor policy decisions have exacerbated this decline in demand.
Miscalculations and unjustified charges on captive power plants have pushed many industrial users out of the gas system. Instead of maintaining industrial flow capacity and export competitiveness, policies have rapidly diverted industries away from gas consumption.
The outcome was predictable: industrial consumers reduced off-take, switched fuels, or completely invested in alternative energy sources. This has severely damaged the economics of the pipeline system.
Pakistan’s gas infrastructure incurs high fixed costs. Pipeline, compressor station, maintenance, debt servicing, and staffing costs do not disappear simply because fewer molecules pass through the network. Instead, these costs are spread over a diminishing volume of gas.
This situation is manifesting as a traditional “utility death spiral.” Reduced consumption leads to increased tariffs, which further decrease demand, creating a vicious cycle.
The utility death spiral is an economic and structural condition where traditional energy providers become trapped in a cycle of losses and price increases.
The core issue is that the fixed costs of the entire system are now being recovered from a shrinking and economically pressured consumer base.
As gas consumption declines, companies are attempting to recover infrastructure costs, UFG losses, financing costs, RLNG obligations, and past deficits from this dwindling consumer base.
Consumers are rapidly facing a bizarre situation where service quality deteriorates, industrial competitiveness declines, and supply reliability is uncertain, yet tariffs continue to rise.
Redirecting imported LNG from industry to the domestic sector has exacerbated the crisis. Pakistan initially imported LNG primarily to support industrial development, improve electricity generation, and foster economic growth. Instead, a growing volume is being diverted to low-paying, heavily subsidized domestic use. The financial implications of this shift are substantial.
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