VZCZCXRO6876
RR RUEHLH RUEHPW
DE RUEHIL #0810/01 0570130
ZNR UUUUU ZZH
R 260130Z FEB 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 5352
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHRC/USDA FAS WASHDC 4158
RUEHNE/AMEMBASSY NEW DELHI 2879
RUEHLO/AMEMBASSY LONDON 7356
RUEHML/AMEMBASSY MANILA 2950
RUEHKP/AMCONSUL KARACHI 9068
RUEHLH/AMCONSUL LAHORE 4916
RUEHPW/AMCONSUL PESHAWAR 3610

UNCLAS SECTION 01 OF 03 ISLAMABAD 000810 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O.  12958:  N/A 
TAGS: ENGY EFIN ECON EINV PREL PK
SUBJECT: NATURAL GAS DEPENDENCY- A CHALLENGE FOR THE FUTURE 
 
REF: Islamabad 655 
 
¶1. (SBU) SUMMARY. Natural gas meets about 50 percent of Pakistan's 
energy requirements, making the country one of the most natural gas 
dependent economies in the world. At the present rate of 
consumption, the Government of Pakistan (GOP) anticipates a natural 
gas shortfall in 2009. Although pipeline discussions are on-going, 
no solution is in sight to assist with Pakistan's severe energy 
shortage.   END SUMMARY. 
 
¶2. (U) This is the second in a series of cables on Pakistan's energy 
sector and provides an overview of the natural gas sector in 
Pakistan. 
 
----------------------- 
Natural Gas Dependency 
----------------------- 
 
¶3. (U) Today natural gas meets about 50 percent of Pakistan's energy 
requirements, making the country one of the most natural gas 
dependent economies of the world.  Pakistan's primary energy 
supplies consist of natural gas (50.4 percent), oil (29.4 percent), 
hydroelectric power (11 percent), coal (7.6 percent), nuclear power 
(1 percent) and liquefied petroleum gas (LPG) (0.40 percent).  In 
January 2005, Pakistan's natural gas reserves stood at 30.13 
trillion cubic feet (TCF), ranking sixth amongst the Asia Pacific 
countries.  At present, total natural gas production is around 3.7 
billion cubic feet per day (BCFD), growing at an annual rate of 
10-15 percent which will result in a natural gas demand/supply gap 
by 2009. 
 
¶4. (U) Pakistan has an integrated infrastructure for the 
transportation and distribution of natural gas.  The country has 
around 9,400 km of transmission pipelines and over 64,000 km of 
natural gas distribution networks, supplying gas to about 4.3 
million consumers. 
 
¶5. (U) According to Pakistan's Oil and Gas Journal, Pakistan had 28 
trillion cubic feet (Tcf) of proven natural gas reserves in 2006. 
The bulk of these reserves are located in the southern half of 
Pakistan.  In 2004, Pakistan produced and consumed 968 billion cubic 
feet (Bcf).  In light of the current onshore exploration activities 
and resource outlook, the GOP expects minor increases in natural gas 
production in the short-term.  However, natural gas production is 
expected to decline over the next 15-25 years, while natural gas 
demand is expected to increase. 
 
-------------------------- 
Exploration and Production 
-------------------------- 
 
¶6. (U) As the largest domestic natural gas producers, Pakistan's 
state-owned Pakistan Petroleum Limited (PPL) and Oil and Gas 
Development Corporation Limited produce around 30 percent and 25 
percent, respectively, of the country's natural gas.  Austrian OMV 
is the largest foreign natural gas producer (17 percent of total 
country's production) in Pakistan.  Additional foreign operators 
include British Petroleum, Italian Eni, and BHP Billiton.  The 
Pakistani government has enacted numerous policies to encourage 
private sector leadership of natural gas development, including 
privatization of state-run businesses, regulation that encourages 
competition and tax incentives geared towards increasing exploration 
and production. 
 
¶7. (U) Pakistan's largest natural gas production occurs at the Sui 
field, which is located in the Southern Indus Basin.  PPL operates 
the Sui field, with production averaging 655 Mmcf/d.  Additional 
producing fields include Mari (446 Mmcf/d), Sawan (366 Mmcf/d), and 
Bhit (316 Mmcf/d).  In 2005, BHP Billiton signed a Gas Sales and 
Purchase Agreement (GSPA), in which the company will supply an 
additional 150 million cubic feet per day (Mmcf/d) of natural gas 
from its Zamzama field.  BHP Billiton will complete phase II 
development of Zamzama in the third quarter of 2007.  Malaysia's 
Petronas brought its Rehmat field online in March 2005.  The field 
produces an estimated 30 Mmcf/d, which is sold to consumers in 
Pakistan's southern Sindh province.  In the past few years, the 
country discovered seven new natural gas fields.  The Pakistani 
government expects the development of these new fields to add an 
additional 1 Bcf/d to Pakistan's natural gas production. 
 
---------------------------------------- 
 
ISLAMABAD 00000810  002 OF 003 
 
 
Imported Natural Gas is the Best Option 
---------------------------------------- 
 
¶8. (U) At the present rate of consumption, the GOP anticipates a 
natural gas shortfall in 2009.  Imported natural gas is the cheapest 
option for meeting Pakistan's present and future energy needs.  The 
two methods to import natural gas are through pipelines and 
liquefied natural gas (LNG).  Bulk import of LNG to meet all of 
Pakistan's energy needs is not a viable option; infrastructure at 
Port Qasim and Karachi Port are not suitable to handle bulk LNG 
imports.  In addition, upcountry transportation of LNG in 
pressurized vessels through heavily populated areas and highways is 
very risky. Pipeline transmission of LNG would require laying new 
transmission lines and related infrastructure, raising costs to 
prohibitive levels.  Pakistan is thus pursuing both LNG and natural 
gas pipeline import initiatives. 
 
¶9. (U) Pipeline natural gas can help Pakistan earn transit fees 
(over half a billion dollars annually) for onward transmission to 
India and/or Afghanistan.  Pakistan is currently considering three 
pipeline projects, yet none of these is currently viable due to 
security, cost, and questionable feasibility. 
 
¶10. (U) Turkmenistan-Afghanistan-Pakistan Gas Pipeline: The proposed 
project is for a 1400km long, 48 inches diameter, over land natural 
gas transmission line, capable of transmitting 2 BCFD from 
Turkmenistan to Afghanistan and to Multan in Pakistan.  Transmission 
of gas to India is not included in the project at this stage of 
planning according to GOP representatives.  Security of the exposed 
gas pipeline through Afghanistan is the biggest issue slowing 
progress on the project.  Completed feasibility studies on the 
project, funded by the Asian Development Bank (ADB), indicate that 
the Turkmenistan field of Daulatabad will only be able to supply a 
portion of the natural gas needed by Pakistan.  Turkmenistan's 
present gas reserves of 101 TCF and production capacity of 790 BCF 
is the lowest of the three options available to Pakistan. 
 
¶11. (U) Qatar Pakistan Gas Pipeline: The proposed project includes a 
1600km long, 44 inches diameter, underwater gas transmission line, 
capable of transmitting 2 BCFD from Qatar's North Dome field to 
Gwadar Port in Pakistan's Balochistan province. Qatar has proven gas 
reserves of 300 TCF giving surplus gas availability for over 50 
years.  The proposed pipeline, to be laid in international waters at 
a depth of about 1000 meters, would be expensive and incur high 
maintenance costs.  The project would include a connection at the 
Port of Gawdar to the Pakistani national transmission system.  Even 
though Pakistan has signed a preliminary agreement to eventually 
purchase natural gas from Qatar, further action on the project has 
not been taken for several years. 
 
¶12. (U) Iran-Pakistan "Peace" Pipeline: Talks on the proposed USD 
7.4 billion pipeline to supply Iranian gas to Pakistan (and perhaps 
India) through a 2,600km pipeline began in 1994 but have stalled 
numerous times.  The proposed project includes a 48 inch diameter, 
over ground pipeline with a transmission capacity of 3 BCFD from 
Iran across the volatile Balochistan province in Pakistan.  Of the 
three pipeline proposals being considered, Iran has the largest 
proven gas reserves with 812 TCF and a reported production capacity 
of 1900 BCF. 
 
¶13. (U) In August 2006, Iran and Pakistan extended a previously 
signed (April 2005) memorandum of understanding until 2007.  The 
pricing structure is the main obstacle for moving forward on the 
pipeline and both India and Pakistan express concerns about how much 
Iran will charge for the natural gas.  To help mediate the pricing 
issue, the three countries appointed an international consultant in 
¶2007. Iran has offered to cover 60 percent of the construction costs 
of the pipeline and Pakistani officials have stressed their ability 
to safeguard the pipeline.  Pakistan could earn about USD 70 million 
annually in transit fees from the pipeline. If India decides to 
forego its part in the pipeline project, Pakistan and Iran have 
agreed to work on a bilateral Iran-Pakistan pipeline project. 
 
---------------------- 
Consumers Want Energy 
---------------------- 
 
¶14. (U) With a goal of reducing dependency on imported oil, 
beginning in 1992, the GOP encouraged conversion of oil- based power 
plants to natural gas and introduced compressed natural gas (CNG) as 
an alternative automotive fuel throughout the country.  Today, 
 
ISLAMABAD 00000810  003 OF 003 
 
 
Pakistan is the third largest user of CNG in the world after 
Argentina and Brazil.  These measures have reduced oil consumption 
but increased natural gas consumption by 20.5 percent.  Consumers 
have been hard hit by natural gas shortages during the severe winter 
and are increasingly frustrated by the long lines at CNG stations to 
refuel their vehicles. 
 
------- 
Comment 
------- 
 
¶14. (SBU) Pakistan is desperate for energy and is looking at all 
options for increasing domestic capacity.  Natural gas provides a 
relatively easy solution to expanding Pakistan's energy resources. 
The GOP is well aware of the USG views on moving forward with the 
Iran pipeline and Post will continue to monitor all developments in 
this field. 
 
PATTERSON