EU policy plunges Pakistan into obscurity


In the streets of Islamabad, the stifling heat offers no respite to the inhabitants. Like the rest of Pakistan, the capital has been suffocating for several weeks under extreme temperatures. And yet, here and there, neither the fans nor the air conditioning turn on in the houses.

Much further south, in Karachi – the country’s largest city – protesters are gathering. A few days earlier, in the north of this arid province of Sindh, a 12-year-old schoolboy, Saeed Ali, died. The child collapsed on returning from his day at school, spent in a classroom without a fan and bathing in over 40°C.

These situations reflect the magnitude of the current crisis. Because everywhere, power cuts follow one another, and sometimes last up to more than 12 hours, making life impossible for citizens, who live to the rhythm of load shedding but nevertheless suffer from an increase in electricity bills. This shock promises to lead to others, which will cascade down the country’s economy as the shortage paralyzes the factories, particularly in textiles (60% of national exports) and the manufacture of fertilizers, necessary for farming. Overwhelmed by events, the government decided in early June to reduce the week for exhausted workers to five days, against six previously, without managing to calm the anger.

Unsuccessful tenders

To more than 7,000 kilometers away, in a Europe hit by Vladimir Putin’s war, it is not the heat wave but the coming winter that worries the public authorities. Faced with the reduction in the flow of Russian gas, Germany, in particular, fears a possible rationing of this fossil fuel essential to its economy. And, like the rest of the continent, the battle is sounding to win a race as recent as it is vital: that of the massive supply of liquefied natural gas (LNG) transported by ship from the four corners of the world rather than by pipelines, to replace the one from Russia. A race in which Pakistan already seems well ahead, as the newcomers are raising the stakes.

And for good reason, in recent weeks, the explosion in demand has upset the global LNG market, and caused cargo prices to skyrocket. So much so that the Islamic Republic, which has been relying on this source of energy for several years to generate its electrons (25% of electricity production depends on it), can no longer keep up. In the absence of the precious fuel, two major power plants have already had to close their doors. To justify this, a member of the federal cabinet admitted on Saturday that Islamabad simply could not compete with the purchasing power of European countries, ready to do anything to get their hands on world reserves. ” Pakistan loses LNG auction war to Europe “, headlined one of the most widely read newspapers in the country on Sunday, dawn.

Liquefied natural gas (LNG): why a global supply crisis is looming

In fact, the three invitations to tender issued by Pakistan for the delivery of LNG in July received only one response. That of QatarEnergy, which has been supplying the South Asian country for several years, but now offers a price four times higher than a year ago, at almost 40 dollars/mmbtu (the unit of account of LNG, which corresponds to 293 kilowatt hours)! A deal refused by state-owned Pakistan LNG Ltd., unable to pay what would have been the most expensive shipment ever delivered to the country. At the end of April, the executive had already agreed to pay nearly 100 million dollars to buy a single shipment of LNG on the spot market, a record for the country, in order to avoid power cuts during Eid.

” The LNG, which was priced at $4 [par mmbtu, ndlr] two and a half years ago, is no longer available, even for $40. Thus, Russia’s war [avec l’Ukraine] has created a real crisis”, reacted the Minister of State for Oil, Musadik Malik.

And the gradual deconfinement in China should further increase the pressure on global reserves.

LNG carriers put the gas to Europe

However, Pakistan had signed long-term contracts with two suppliers for the delivery of LNG, the Italian energy company Eni and the Swiss-Russian trader Gunvor Group. But in fact, the latter would have cut more than a dozen shipments from October 2021 to June 2022, coinciding with soaring gas prices in Europe, according to data from Bloomberg. And for good reason, thePakistan’s contracts provided for a penalty of only 30% in the event of cancellation – most likely in exchange for lower prices overall, notes the agency. Result: the LNG carriers would have preferred to turn around, even if it meant paying compensation costs and hundreds of thousands of dollars in tolls, in order to sell the precious cargo more expensively to Europeans.

Charges against which Eni defends itself, since it would in fact be an intermediary, the trading giant Trafigura, which would not ” did not fulfill the agreed obligations » ; in other words, who would have hijacked his boats without the agreement of the Italian producer. ” Eni has not profited or benefited in any way from these defects “, insists a spokesperson, without however specifying the measures taken by the company to manage the disturbances. ” We do not comment on commercial matters “replies Trafigura for its part. Solicited by The gallerythe trader Gunvor Group did not wish to speak either.

Gas: Engie condemned for a few tenths of a second of trading

Coal is making a comeback

The situation is all the more critical as the shortage of LNG is compounded by a second handicap: the drought that is hitting Pakistan is depleting the waterways, hampering the operation of the hydraulic power stations, which the country needs in order to produce nearly 1/4 of its electricity. Taken by surprise, the government is counting heavily on the arrival of the monsoon this summer to fill the dams again.

But the torrential rains to come will not be enough: to try to stem the LNG crisis, the executive has no choice but to ” organize alternates “, Argued a few days ago the Minister of Oil to journalists. In other words, to increase the production of coal and fuel imports to supply power stations, despite their deleterious impact on the climate. Results : ” fuel oil consumption in the first eleven months of the 2021-22 financial year (July-June) “already records a” 35% increase over one year “S&P Global noted on June 15. And the trend should continue to grow.

“While they have been touted gas as a transition energy, they find themselves with very few alternatives [lorsque l’on se rue sur ce gaz]. And end up turning again to the most polluting fuels of all. […] It’s a paradox in which Europeans lock themselves up,” regrets Phuc-Vinh Nguyen, researcher at the Energy Center of the Jacques Delors Institute.

The shortage could affect Europe

Still, Europe itself is turning again to black gold, from Germany to Austria, via France, where the Moselle power station of Saint-Avold will have to restart to spend the winter. And if the prospect of rationing is not yet anchored in people’s consciences, the circumstances are such that, in France, the CEOs of EDF, Engie and TotalEnergies launched this Sunday, in a published column in the JDD, a call to a ” collective effort » reduction in consumption.

An invitation to sobriety which recalls that of the President of the Italian Council, Mario Draghi, the latter having opposed in April “air conditioning and peace” in the face of the Russian invasion. Friday, across the Rhine, the executive also warned that germany will have to make “very difficult choices of society » if Russian supplies continue to dwindle, and has openly mentioned gas rationing in the coming months.

And yet, apart from a few sweeping declarations, no energy saving plan seems to emerge within the French government, even if three working groups are soon to be set up on this issue. Worse: at the beginning of June, Emmanuel Macron affirmed that France was not facing ” no risk of cuts of electricity this winter, despite the glaring lack of margins. A “reassuring” speech dismantled by many experts, who are trying somehow to sound the alarm before the heating season.

Gas crisis: France’s emergency plan to avoid a shortage this winter