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Pakistan Today

Published Date: Mar 29, 2014

Shale on the energy shore?

Developing Pakistan’s shale oil and gas reserves can not only overturn our chronic energy shortage, but also help address poverty, employment, and trade deficit concerns. And it helps that our reserves are currently the eight largest in the world. A report recently prepared by the Islamabad based Sustainable Development Policy Institute (SDPI), and forwarded to the prime minister, estimates savings of approximately $15b, enough to eliminate the trade deficit altogether.

Potential for a shale oil and gas revolution has occupied industry analysts and Wall Street pundits alike for a number of years, and is not without controversy. Its extraction is a complicated process, and so long as proper technology was not developed it was widely portrayed as an ambitious project mainly supported by anti-oil lobby groups, and dismissed as more noise than material.

Game changer

Investment banks and hedge funds from New York to the City of London, so dependent on Big Oil money, also downplayed the shale phenomenon, preferring to keep the oil world restricted to traditional demand-supply matrices, and spot and futures trading across their counters.

But the US House had started growing wary of “addiction to Middle East oil” since the Bush days, when the partnership with the Gulf’s petro princes was apparently at its most mutually beneficial. And the Obama administration was eager for a more autonomous energy mix for more profound reasons, which included a visible desire to break off from the regressive oil influence of Gulf monarchies. With the war on terror and Arab Spring also coming into play, and presenting policy cleavages with the Saudis regarding controlling and funding al Qaeda like proxies across conflict zones, shale played a central role in formulating new US foreign and energy policy.

Shale extraction involves a process called hydraulic fracturing, commonly referred to as fracking. But bringing the oil and gas to the surface sets off certain gases into the atmosphere, which triggered a wave of concern and protests among more environmentally sensitive governments of Western Europe, leading to a temporary freeze across much of the continent.

Shale extraction involves a process called hydraulic fracturing, commonly referred to as fracking. But bringing the oil and gas to the surface sets off certain gases into the atmosphere, which triggered a wave of concern and protests among more environmentally sensitive governments of Western Europe, leading to a temporary freeze across much of the continent. The Americans, however, leveraged the shale revolution for bigger policy objectives, where it proved a game changer.

For the first time in its history, America is set to become a net energy exporter, largely because of the shale opportunity. And while not quite in an instant, but rather quickly, it is rid of its long standing dependence on foreign oil. This has enabled very fast, and bold, policy changes in the Middle East. OPEC’s oil muscle suddenly no longer as potent a deterrent, Washington has begun confronting GCC states, especially Saudi Arabia, for long unchecked excesses. It has recently threatened Riyadh with sanctions for sponsoring terrorism because of its support for Islamist militias. It is also not much worried about Saudi concerns as it begins unprecedented negotiations with Iran.

And while much of Europe will clearly take its time fully embracing shale – European countries have precedents of elections swinging on environmental issues – much of the rest of the world has been very impressed, and countries from Canada to China, Mexico to India, are lining up to take advantage of their own reserves.

Situation in Pakistan

For Pakistan to be so well naturally endowed with shale is indeed a blessing, hence SDPI’s optimism. Energy, along with terrorism, is the country’s most pressing problem. If the security situation deters foreign and local investment besides triggering capital flight, the energy problem eats into whatever little production does take place. And big multi-year investments needed to turn the energy mix will no doubt buoy the jobs market.

Both fiscal and monetary regimes have failed to stimulate investment and employment. Rather than facilitate the private sector, the government has gone out of its way to crowd out indigenous investment initiatives. And because of its overwhelming presence in the money market – heavily borrowing even for basic official expenditure – it has eroded capital for private investment and expansion.

At such a time the shale industry can provide precious employment opportunities across the country, especially since reserves have been found from Kohat, Potohar basins, across DG Khan, all the way down to Badin. And since the process is more labour-intensive than conventional oil extraction, job creation benefits will extend to semi skilled sections, creating an estimated 75,000 new jobs in the exploration phase alone. Yet it seems the SDPI’s projections are not causing immediate joy in too many government departments.

Considering the benefits that shale can bring Pakistan – energy sufficiency, even net export ability – there should be little hesitation on part of the government.

“There is considerable optimism in the finance ministry, but the petroleum ministry still seems favouring the LNG alternative”, Engr Arshad Abbassi, Advisor SDPI and lead author of the report, told Pakistan Today. “There are also voices from the renewable industry favouring solar and wind energy that drown far more feasible suggestions like shale”.

LNG as a temporary fix seems widely acceptable, but SDPI’s concerns over longer reliance have wider resonance.

“Pursuing the LNG policy over 20-25 years would be very wrong”, said Dr Salman Shah, former finance minister and supporter of government policy favouring exploring and extracting shale. “It should only be used as a stop-gap arrangement for two to five years while shale infrastructure is put into place”.

Energy and security formed core points of the N-league’s campaign prior to the elections. Its security policy of appeasement, while moderately successful for those favouring its right-of-centre point of view, has drawn its share of criticism from numerous circles. With regard to energy, it is now seen as presented with an unprecedented opportunity.

“It is a matter of priorities”, said Engr Abbassi. “The whole world is moving towards shale. With Poland, even Europe’s reluctance is beginning to lessen”.

Such a significant shift will no doubt come with reluctance from the powerful oil lobby, whose interests will be hurt. But considering the benefits that shale can bring Pakistan – energy sufficiency, even net export ability – there should be little hesitation on part of the government.

“Once political will is there, governments are far more powerful than lobbies and mafias”, added Dr Shah.

“Shale will give us energy independence for a hundred years. It is the way of the future. The government should immediately grasp this opportunity”.